Interventionismhttps://mises.org/
enWed, 16 Jan 2019 15:16:54 -0600Mon, 21 Jan 2019 08:12:41 -0600The Fallacy of the "Public Sector"https://mises.org/node/6363
<div class="editorial-preface"><p>[This article is excerpted from <a href="http://mises.org/resources/6301/Economic-Controversies"><i>Economic Controversies</i></a>, chapter 21, "The Fallacy of the 'Public Sector'" (2011). It originally appeared in the <i>New Individualist Review</i> (Summer, 1961): 3–7.]</p></div>
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<p>We have heard a great deal in recent years of the "public sector," and solemn discussions abound through the land on whether or not the public sector should be increased <em>vis-à-vis</em> the "private sector." The very terminology is redolent of pure science, and indeed it emerges from the supposedly scientific, if rather grubby, world of "national-income statistics." But the concept is hardly <em>wertfrei</em>; in fact, it is fraught with grave, and questionable, implications.</p>
<p>In the first place, we may ask, "public sector" of <em>what</em>? Of something called the "national product." But note the hidden assumptions: that the national product is something like a pie, consisting of several "sectors," and that these sectors, public and private alike, are added to make the product of the economy as a whole. In this way, the assumption is smuggled into the analysis that the public and private sectors are equally productive, equally important, and on an equal footing altogether, and that "our" deciding on the proportions of public to private sector is about as innocuous as any individual's decision on whether to eat cake or ice cream. The State is considered to be an amiable service agency, somewhat akin to the corner grocer, or rather to the neighborhood lodge, in which "we" get together to decide how much "our government" should do for (or to) us. Even those neoclassical economists who tend to favor the free market and free society often regard the State as a generally inefficient, but still amiable, organ of social service, mechanically registering "our" values and decisions.</p>
<p>One would not think it difficult for scholars and laymen alike to grasp the fact that government is <em>not</em> like the Rotarians or the Elks; that it differs profoundly from all other organs and institutions in society; namely, that it lives and acquires its revenues by coercion and not by voluntary payment. The late Joseph Schumpeter was never more astute than when he wrote, "The theory which construes taxes on the analogy of club dues or of the purchase of the services of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind."<a class="see-footnote" id="footnoteref1_56awrp7" title="In the preceding sentences, Schumpeter wrote,The friction of antagonism between the private and the public sphere was intensified from the first by the fact that … the state has been living on a revenue which was being produced in the private sphere for private purposes and had to be deflected from these purposes by political force. (Joseph A. Schumpeter, Capitalism, Socialism, and Democracy [New York: Harper and Bros., 1942], p. 198)" href="#footnote1_56awrp7">1</a></p>
<p>Apart from the public sector, what constitutes the productivity of the "private sector" of the economy? The productivity of the private sector does not stem from the fact that people are rushing around doing "something," anything, with their resources; it consists in the fact that they are using these resources to satisfy the needs and desires of the consumers. Businessmen and other producers direct their energies, on the free market, to producing those products that will be most rewarded by the consumers, and the sale of these products may therefore roughly "measure" the importance that the consumers place upon them. If millions of people bend their energies to producing horses-and-buggies, they will, in this day and age, not be able to sell them, and hence the productivity of their output will be virtually zero. On the other hand, if a few million dollars are spent in a given year on Product X, then statisticians may well judge that these millions constitute the productive output of the X-part of the "private sector" of the economy.</p>
<p>One of the most important features of our economic resources is their scarcity: land, labor, and capital-goods factors are all scarce, and may all be put to various possible uses. The free market uses them "productively" because the producers are guided, on the market, to produce what the consumers most need: automobiles, for example, rather than buggies. Therefore, while the statistics of the total output of the private sector <em>seem</em> to be a mere adding of numbers, or counting units of output, the measures of output actually involve the important qualitative decision of considering as "product" what the consumers are willing to buy. A million automobiles, sold on the market, are productive because the consumers so considered them; a million buggies, remaining unsold, would <em>not</em> have been "product" because the consumers would have passed them by.</p>
<p>Suppose now that into this idyll of free exchange enters the long arm of government. The government, for some reasons of its own, decides to ban automobiles altogether (perhaps because the many tailfins offend the aesthetic sensibilities of the rulers) and to compel the auto companies to produce the equivalent in buggies instead. Under such a strict regimen, the consumers would be, in a sense, compelled to purchase buggies because no cars would be permitted. However, in this case, the statistician would surely be purblind if he blithely and simply recorded the buggies as being just as "productive" as the previous automobiles. To call them equally productive would be a mockery; in fact, given plausible conditions, the "national product" totals might not even show a statistical decline, when they had actually fallen drastically.</p>
<p>And yet the highly touted "public sector" is in even worse straits than the buggies of our hypothetical example. For most of the resources consumed by the maw of government have not even been seen, much less used, by the consumers, who were at least allowed to ride in their buggies. In the private sector, a firm's productivity is gauged by how much the consumers voluntarily spend on its product. But in the public sector, the government's "productivity" is measured — <a href="http://en.wiktionary.org/wiki/mirabile_dictu"><em>mirabile dictu</em></a> — by how much <em>it spends</em>! Early in their construction of national-product statistics, the statisticians were confronted with the fact that the government, unique among individuals and firms, could not have its activities gauged by the voluntary payments of the public — because there were little or none of such payments. Assuming, without any proof, that government <em>must</em> be as productive as anything else, they then settled upon its expenditures as a gauge of its productivity. In this way, not only are government expenditures just as useful as private, but all the government need to do in order to increase its "productivity" is to add a large chunk to its bureaucracy. Hire more bureaucrats, and see the productivity of the public sector rise! Here, indeed, is an easy and happy form of social magic for our bemused citizens.</p>
<p>The truth is exactly the reverse of the common assumptions. Far from adding cozily to the private sector, the public sector can only feed off the private sector; it necessarily lives parasitically upon the private economy. But this means that the productive resources of society — far from satisfying the wants of consumers — are now directed, by compulsion, <em>away from</em> these wants and needs. The consumers are deliberately thwarted, and the resources of the economy diverted from them to those activities desired by the parasitic bureaucracy and politicians. In many cases, the private consumers obtain nothing at all, except perhaps propaganda beamed to them at their own expense. In other cases, the consumers receive something far down on their list of priorities — like the buggies of our example. In either case, it becomes evident that the "public sector" is actually <em>anti</em>productive: that it <em>subtracts from</em>, rather than adds to, the private sector of the economy. For the public sector lives by continuous attack on the very criterion that is used to gauge productivity: the voluntary purchases of consumers.</p>
<p>We may gauge the fiscal impact of government on the private sector by subtracting government expenditures from the national product. For government payments to its own bureaucracy are hardly additions to production; and government absorption of economic resources takes them out of the productive sphere. This gauge, of course, is only fiscal; it does not begin to measure the antiproductive impact of various government regulations, which cripple production and exchange in other ways than absorbing resources. It also does not dispose of numerous other fallacies of the national product statistics. But at least it removes such common myths as the idea that the productive output of the American economy increased during World War II. Subtract the government deficit instead of add it, and we see that the real productivity of the economy declined, as we would rationally expect during a war.</p>
<p>In another of his astute comments, Joseph Schumpeter wrote, concerning anticapitalist intellectuals, "capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear; the only success a victorious defense can possibly produce is a change in the indictment."<a class="see-footnote" id="footnoteref2_s8q5rq0" title="Ibid, p. 144." href="#footnote2_s8q5rq0">2</a> The indictment has certainly been changing. In the 1930s, we heard that government must expand because capitalism had brought about mass poverty. Now, under the aegis of John Kenneth Galbraith, we hear that capitalism has sinned because the masses are too affluent. Where once poverty was suffered by "one-third of a nation," we must now bewail the "starvation" of the public sector.</p>
<p>By what standards does Dr. Galbraith conclude that the private sector is too bloated and the public sector too anemic, and therefore that government must exercise further coercion to rectify its own malnutrition? Certainly, his standard is not historical. In 1902, for example, net national product of the United States was $22.1 billion; government expenditure (federal, state, and local) totaled $1.66 billion, or 7.1 percent of the total product. In 1957, on the other hand, net national product was $402.6 billion, and government expenditures totaled $125.5 billion, or 31.2 percent of the total product. Government's fiscal depredation on the private product has therefore multiplied from four to five-fold over the present century. This is hardly "starvation" of the public sector. And yet, Galbraith contends that the public sector is being increasingly starved, relative to its status in the nonaffluent 19th century!</p>
<p>What standards, then, does Galbraith offer us to discover when the public sector will finally be at its optimum? The answer is nothing but personal whim:</p>
<blockquote><p>There will be question as to what is the test of balance — at what point may we conclude that balance has been achieved in the satisfaction of private and public needs. The answer is that no test can be applied, for none exists.… The present imbalance is clear.… This being so, the direction in which we move to correct matters is utterly plain.<a class="see-footnote" id="footnoteref3_gzcbqyy" title="John Kenneth Galbraith, The Affluent Society (Boston: Houghton Mifflin, 1958), pp. 320–21." href="#footnote3_gzcbqyy">3</a></p></blockquote>
<p>To Galbraith, the imbalance of today is "clear." Clear why? Because he looks around him and sees deplorable conditions wherever government operates. Schools are overcrowded, urban traffic is congested and the streets littered, rivers are polluted; he might have added that crime is increasingly rampant and the courts of justice clogged. All of these are areas of government operation and ownership. The one supposed solution for these glaring defects is to siphon more money into the government till.</p>
<p>But how is it that only <em>government</em> agencies clamor for more money and denounce the citizens for reluctance to supply more? Why do we never have the private-enterprise equivalents of traffic jams (which occur on government streets), mismanaged schools, water shortages, and so on? The reason is that private firms acquire the money that they deserve from two sources: voluntary payment for the services by consumers, and voluntary investment by investors in expectation of consumer demand. If there is an increased demand for a privately owned good, consumers pay more for the product, and investors invest more in its supply, thus "clearing the market" to everyone's satisfaction. If there is an increased demand for a publicly owned good (water, streets, subway, and so on), all we hear is annoyance at the consumer for wasting precious resources, coupled with annoyance at the taxpayer for balking at a higher tax load. Private enterprise makes it its business to court the consumer and to satisfy his most urgent demands; government agencies denounce the consumer as a troublesome user of their resources. Only a government, for example, would look fondly upon the prohibition of private cars as a "solution" for the problem of congested streets. Government's numerous "free" services, moreover, create permanent excess demand over supply and therefore permanent "shortages" of the product. Government, in short, acquiring its revenue by coerced confiscation rather than by voluntary investment and consumption, is not and <em>cannot</em> be run like a business. Its inherent gross inefficiencies, the impossibility for it to clear the market, will insure its being a mare's nest of trouble on the economic scene.<a class="see-footnote" id="footnoteref4_u7mc7p4" title="For more on the inherent problems of government operations, see Murray N. Rothbard, "Government in Business," in Essays on Liberty (Irvington-on-Hudson, N.Y: Foundation for Economic Education, 1958), vol. 4, pp. 183–87." href="#footnote4_u7mc7p4">4</a></p>
<p>In former times, the inherent mismanagement of government was generally considered a good argument for keeping as many things as possible out of government hands. After all, when one has invested in a losing proposition, one tries to refrain from pouring good money after bad. And yet, Dr. Galbraith would have us redouble our determination to pour the taxpayer's hard-earned money down the rathole of the "public sector," and uses the very defects of government operation as his major argument!</p>
<p>Professor Galbraith has two supporting arrows in his bow. First, he states that, as people's living standards rise, the added goods are not worth as much to them as the earlier ones. This is standard knowledge; but Galbraith somehow deduces from this decline that people's private wants are now worth nothing to them. But if that is the case, then why should <em>government</em> "services," which have expanded at a much faster rate, still be worth so much as to require a further shift of resources to the public sector? His final argument is that private wants are all artificially induced by business advertising, which automatically "creates" the wants that it supposedly serves. In short, people, according to Galbraith, would, if let alone, be content with nonaffluent, presumably subsistence-level living; <em>advertising</em> is the villain that spoils this primitive idyll.</p>
<p>Aside from the philosophical problem of how A can "create" B's wants and desires without B's having to place his own stamp of approval upon them, we are faced here with a curious view of the economy. <em>Is</em> everything above subsistence "artificial"? By what standard? Moreover, why in the world should a business go through the extra bother and expense of inducing a change in consumer wants, when it can profit by serving the consumer's existing, uncreated wants? The very "marketing revolution" that business is now undergoing, its increased and almost frantic concentration on "market research," demonstrates the reverse of Galbraith's view. For if, by advertising, business production automatically creates its own consumer demand, there would be no need whatever for market research — and no worry about bankruptcy either. In fact, far from the consumer in an affluent society being more of a "slave" to the business firm, the truth is precisely the opposite: for as living standards rise above subsistence, the consumer gets more particular and choosy about what he buys. The businessman must pay even greater court to the consumer than he did before: hence the furious attempts of market research to find out what the consumers want to buy.</p>
<p>There is an area of our society, however, where Galbraith's strictures on advertising may almost be said to apply — but it is in an area that he curiously never mentions. This is the enormous amount of advertising and propaganda <em>by government</em>. This is advertising that beams to the citizen the virtues of a product that, unlike business advertising, he never has a chance to test. If Cereal Company X prints a picture of a pretty girl declaiming that "Cereal X is yummy," the consumer, even if doltish enough to take this seriously, has a chance to test that proposition personally. Soon his <em>own</em> taste determines whether he will buy or not. But if a government agency advertises its own virtues over the mass media, the citizen has no direct test to permit him to accept or reject the claims. If any wants are artificial, they are those generated by government propaganda. Furthermore, business advertising is, at least, paid for by investors, and its success depends on the voluntary acceptance of the product by the consumers. Government advertising is paid for by means of taxes extracted from the citizens, and hence can go on, year after year, without check. The hapless citizen is cajoled into applauding the merits of the very people who, by coercion, are forcing him to pay for the propaganda. This is truly adding insult to injury.</p>
<p>If Professor Galbraith and his followers are poor guides for dealing with the public sector, what standard does our analysis offer instead? The answer is the old Jeffersonian one: "that government is best which governs least." Any reduction of the public sector, any shift of activities from the public to the private sphere, is a net moral and economic gain.</p>
<p>Most economists have two basic arguments on behalf of the public sector, which we may only consider very briefly here. One is the problem of "external benefits." A and B often benefit, it is held, if they can force C into doing something. Much can be said in criticism of this doctrine; but suffice it to say here that any argument proclaiming the right and goodness of, say, three neighbors, who yearn to form a string quartet, forcing a fourth neighbor at bayonet point to learn and play the viola, is hardly deserving of sober comment. The second argument is more substantial; stripped of technical jargon, it states that some essential services simply <em>cannot</em> be supplied by the private sphere, and that therefore government supply of these services is necessary. And yet, every single one of the services supplied by government has been, in the past, successfully furnished by private enterprise. The bland assertion that private citizens cannot possibly supply these goods is never bolstered, in the works of these economists, by any proof whatever. How is it, for example, that economists, so often given to pragmatic or utilitarian solutions, do not call for social "experiments" in this direction? Why must political experiments always be in the direction of more government? Why not give the free market a county or even a state or two, and see what it can accomplish?</p>
<div class="article-author">This article is excerpted from <a href="http://mises.org/resources/6301/Economic-Controversies"><i>Economic Controversies</i></a>, chapter 21, "The Fallacy of the 'Public Sector'" (2011). It originally appeared in the <i>New Individualist Review</i> (Summer, 1961): 3–7.</div>
<ul class="footnotes"><li class="footnote" id="footnote1_56awrp7"><a class="footnote-label" href="#footnoteref1_56awrp7">1.</a> In the preceding sentences, Schumpeter wrote,<br />The friction of antagonism between the private and the public sphere was intensified from the first by the fact that … the state has been living on a revenue which was being produced in the private sphere for private purposes and had to be deflected from these purposes by political force. (Joseph A. Schumpeter, <em>Capitalism, Socialism, and Democracy</em> [New York: Harper and Bros., 1942], p. 198)</li>
<li class="footnote" id="footnote2_s8q5rq0"><a class="footnote-label" href="#footnoteref2_s8q5rq0">2.</a> Ibid, p. 144.</li>
<li class="footnote" id="footnote3_gzcbqyy"><a class="footnote-label" href="#footnoteref3_gzcbqyy">3.</a> John Kenneth Galbraith, <em>The Affluent Society</em> (Boston: Houghton Mifflin, 1958), pp. 320–21.</li>
<li class="footnote" id="footnote4_u7mc7p4"><a class="footnote-label" href="#footnoteref4_u7mc7p4">4.</a> For more on the inherent problems of government operations, see Murray N. Rothbard, "Government in Business," in <em>Essays on Liberty</em> (Irvington-on-Hudson, N.Y: Foundation for Economic Education, 1958), vol. 4, pp. 183–87.</li>
</ul>Murray N. RothbardThe Fallacy of the "Public Sector"<img typeof="foaf:Image" src="https://mises.org/sites/default/files/styles/slideshow/public/static-page/img/redtape_0.JPG?itok=UnEjzbXO" width="240" alt="redtape_0.JPG" />6363January 19, 2019 - 2:00 PMInterventionismFrance's Crisis Is the Latest In a Long History of Conflict over France's Un-Free Marketshttps://mises.org/node/45353
<p>Even after ten weeks, the "yellow vest" protests in France continue. Mass protests such as these, with their violence and destruction, have not been seen in France for decades.</p>
<p>The basic narrative of these events is well known. Macron was elected with a program, which the promise he would enhance the competitiveness of the national economy through liberalization reforms. It was a kind of “Make France Competitive Again” program to ensure that France not be dependent on the goodwill of Germany. He enjoyed some outright support among the electorate (about one quarter of the voters) and a larger pool of voters half-heartedly accepted his proposal, given that his archrival campaigned under the banner of Frexit, leaving Europe completely. His steps toward reform, it turned out, were not well liked, and his popularity went into free fall. Nonetheless, the reform process was not scuttled by violent resistance from the unions — a fate which undermined the reform attempts of his predecessors, including the left-wing Hollande and the right-wing Sarkozy.</p>
<p>But now, for weeks Paris has been burning due to an unexpected and shockingly large wave of protest against Macron. A wave of protest that involves most of France, and that enjoys wide popular support. There has been nothing like this in France for several decades.</p>
<p>The wave of protest was provoked by a large tax increase on gasoline, and not by the reforms aimed to make the French economy more like a free(er) market economy.</p>
<h4>France's Un-Free Economy</h4>
<p>If there is an example of a dirigiste, interventionist state, then that is France in Europe. France was the birthplace of the mercantilist, absolutist monarchy in the early modern period. The Bourbon Kings had perfected the practice of mercantilist protection and monopolization of key industries. This included the state mandated “industrial development policies” in the seventeenth and eighteenth centuries. To the detriment of France, under the rule of the famous finance Minister Jean-Baptiste Colbert, textile manufacturers were heavily regulated, subsidized, and controlled. This mistaken policy allowed Britain — which opted for policies allowing more freedom to industrialists — to industrialize faster than France. While Britain developed to become the workshop of the world (and their fleet ruled the seas), France sunk into a series of crises and lost her pre-eminent position in Europe. The great grandchild of the Sun King paid with his head for the crisis of dirigiste state of his time.</p>
<p>The modern French state is the stepchild of the political culture of the Bourbons. It is the prime example of dirigisme. It redistributes as much as 56% of annual GDP and imposes the highest tax burden in Europe. The French state directly manages key industries and sustains one of the largest welfare states in Europe. Also, it imposes complicated bureaucratic red tape on economic actors, trailing way behind the Scandinavian states or Germany as far as ease of business concerned.</p>
<p>France is nevertheless also a great power and one of the key states in Europe, it is harboring great European and geopolitical ambitions.</p>
<p>The highly trained political and technocratic elite, which is probably one of the most sophisticated political elites in the world, is one of the key drivers behind the interventionist state and the European and geopolitical ambitions of France. This dirigiste French political culture was, in general, supported by public opinion, which expects the embracing of an overarching welfare state and the enhancement of "Gloire," national pride.</p>
<p>The other side of the scale, however, is the slow deterioration of the position of France due to her slow economic growth, increasing debt level, high deficit, and high unemployment rate, which seems to be stable around 10%.</p>
<p>Since the early eighties, one of the key challenges of French political life was how to strike a balance between the deeply ingrained culture of dirigisme and competitiveness. The relative decline of the French economy not only had negative implications on internal stability, but it threatened the European and geopolitical ambitions of the French political elite. This was especially painful with the relative decline of France as compared to Germany, which is threatening the traditional leading role of France in Europe.</p>
<p>Probably, Mitterand was the first president who won elections based on a (leftwing) dirigiste program promising further development of the welfare state. But he had to face reality and introduce austerity measures aiming to enhance competitiveness. The predecessors of Macron — Sarkozy and Hollande — also lost their re-election hopes: they had to abandon their grandiose promises made during the election campaigns, and invariably tried to introduce reform programs aiming to lessen state intervention.</p>
<p>Macron was the first French politician to build his election campaigns on reform and competitiveness in order to keep up the position of France in the world. As member of the the Hollande government, Macron proposed raising the workweek from 35 to 37 hours. He worked to lessen the tax-burden on higher incomes. The competitiveness package he developed argued to lessen the protection of workers and companies in order to promote growth.</p>
<p>It was predictable, however, that once elected, his popularity would plummet. First of all, much of the electorate voted for him as a way to repudiate and even more threatening candidate, Marie LePen. Second, it is one thing to accept the inevitability of reforms, and another to actually experience the difficulties they pose in personal life.</p>
<p>There was one hope for Macron: that he had enough time that his reform package would usher in growth quickly, and in 2022 he could base his re-election campaign on good looking figures of growth, less unemployment, and better wages.</p>
<p>The tax increase of Macron, however, is depriving companies, entrepreneurs, and employees of what they hoped from the reforms: greater scope of action to enhance their income.</p>
<p>The sudden outbreak of waves of protest shows the most destructive course of action is to pursue an economic policy which on the one hand promises to liberate the economy from state shackles, but on the other hand increases taxes. Macron took away with his left hand what he intended to give with his right hand. A professed program of decreasing the role of the suffocating, overregulating and overtaxing state is irreconcilable with tax increases.</p>
<p>France is again at a crossroad: she has to choose between the policies of Colbert and those Anne-Robert-Jacques Turgot, the great French liberal economist, who was economic minister of France, between 1774 and 1776. Turgot had argued for free trade, less tax, and less regulation. But Turgot after two years had to resign. His work had more influence on Adam Smith than on French politics.</p>
<p>The real consequence of a choice between Colbert or Turgot will not be felt immediately, but from generation to generation the difference is the question of inevitable decline or sustained growth. Indeed, as history demonstrates, it is a choice of life or death.</p>
András TóthFrance's Crisis Is the Latest In a Long History of Conflict over France's Un-Free Markets<img typeof="foaf:Image" src="https://mises.org/sites/default/files/styles/slideshow/public/static-page/img/flag1.JPG?itok=NJ8rjCDl" width="240" alt="flag1.JPG" />45353January 17, 2019 - 11:00 AMInterventionismThe "Green New Deal" Debunked (Part 1 of 2)https://mises.org/node/45263
<p>There’s a <a href="https://www.cnn.com/2018/12/10/opinions/green-new-deal-ocasio-cortez-climate-change-romero-jones/index.html">growing buzz around a “Green New Deal,”</a> spearheaded by newly-elected Alexandria Ocasio-Cortez. Although the details are in flux, currently the <a href="https://docs.google.com/document/d/1jxUzp9SZ6-VB-4wSm8sselVMsqWZrSrYpYC9slHKLzo/edit">draft text</a> calls for the creation of a 15-member “Select Committee for a Green New Deal” that would “have authority to develop a detailed national, industrial, economic mobilization plan” to make the U.S. economy “greenhouse gas emissions neutral.” As if that weren’t ambitious enough, the Select Committee’s detailed national plan would also have the goal “to promote economic and environmental justice and equality.” The draft specifically mentions spending $1 trillion over ten years, in addition to extensive taxes and regulations to steer the economy and society as the 15 committee members see fit. (To be clear, the draft text currently calls for the <em>creation of the select committee</em>, which in turn is then tasked with drafting legislation forming the “Green New Deal” itself.)</p>
<p>In this two-part series I will strongly critique both the spirit and substance of a proposed “Green New Deal.” In the second article, I will focus on the specific proposals in the draft legislation. But in this first piece I will give the historical context and explain why the very <em>notion </em>of a Green New Deal is misguided, because it relies on faulty history and bad economics.</p>
<h4><strong>The Original New Deal Was Implemented During the Great Depression</strong></h4>
<p>Perhaps the most obvious flaw with anyone proposing a modern-day New Deal—whether green or any other hue—is that we are not currently in the midst of an economic depression. Even textbook Keynesians, who think that (say) the incoming Obama Administration was justified in administering a large “stimulus package” because we were stuck in a so-called liquidity trap, now admit that there is no <em>economic </em>rationale for continuing to run large budget deficits. (As Paul Krugman notoriously and conveniently wrote soon after the election of Trump, <a href="https://www.nytimes.com/2017/01/09/opinion/deficits-matter-again.html">“Deficits Matter Again.”</a>)</p>
<p>The very term “New Deal” was chosen to appeal to the 20%+ of the unemployed in the workforce, who had ostensibly been left behind by the traditional U.S. economic system. Yes, Ocasio-Cortez and her supporters are touting the Green New Deal as (among other things) the solution to lingering economic inequities in the current system. But to call concern over a wage gap a “New Deal” is as inapt as christening a bullet train program a “Green Moon Shot.”</p>
<h4><strong>The New Deal Actually Hurt the U.S. Economy and Prolonged the Great Depression</strong></h4>
<p>To reiterate, even if you were a die-hard Keynesian who believed in the virtues of fiscal stimulus, right now—with official unemployment at 3.7% and price inflation rising above the Fed’s target—it makes no sense to launch another New Deal.</p>
<p>But things are worse, because the Keynesian fans of FDR are wrong. The New Deal actually <em>hurt </em>the U.S. economy and prolonged the Great Depression.</p>
<p>I’ve written an <a href="https://www.amazon.com/Politically-Incorrect-Guide-Depression-Guides/dp/1596980966/ref=sr_1_fkmr0_1?ie=UTF8&qid=1545287058&sr=8-1-fkmr0&keywords=politically+incorrect+guide+to+the+new+deal">entire book on this topic</a>, but here is one key table, comparing unemployment rates in the U.S. and Canada:</p>
<div class="media media-element-container media-image_no_caption media-wysiwyg-align-center"><a href="https://mises-media.s3.amazonaws.com/styles/max_1160/s3/Screen-Shot-2018-12-20-at-2.53.33-PM.png?itok=qtHQj9qZ" title="Screen-Shot-2018-12-20-at-2.53.33-PM.png" class="colorbox" data-colorbox-gallery="gallery-file-79497-AvDS5UxDrcU" data-cbox-img-attrs="{"title": "", "alt": ""}"><img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/max_full/s3/Screen-Shot-2018-12-20-at-2.53.33-PM.png?itok=v0g1tpEs" width="614" height="579" alt="Screen-Shot-2018-12-20-at-2.53.33-PM.png" title="" /></a></div>
<figure id="attachment_33379"><h6 class="text-center">Source: Robert P. Murphy, The Politically Incorrect Guide to the Great Depression and the New Deal, p. 103.</h6>
<p>Roosevelt was elected in late 1932 and was inaugurated in early 1933. (Presidents were sworn in on March 4 back then.) As the table shows, unemployment in absolute terms remained awful for <em>the next 8 years</em>—it was not until 1941 that the annual average unemployment rate got back into the single digits (and just barely, at 9.9%).</p></figure><p>Even worse, fans of FDR can’t simply blame the problem on the huge hole that FDR inherited from Herbert Hoover. In 1933, the U.S. unemployment was 5.6 percentage points higher than Canada’s. The next year, the gap <em>widened </em>to 7.2 percentage points. Jumping ahead to 1938—five years after Roosevelt is sworn in—the gap between the two countries’ unemployment rates is 7.6 percentage points.</p>
<p>In light of the above figures, why is it that people say of Roosevelt, “He got us out of the Depression”? As I ask in my book: What would the unemployment data have to look like, in order for conventional historians and the public to say FDR <em>kept us mired </em>in the Great Depression?</p>
<h4><strong>The “Green New Deal” Is a Power Grab for Progressives</strong></h4>
<p>Although it is of course cloaked in the mantle of peer-reviewed natural science, the Green New Deal is clearly a political program, designed to check every box on the progressive wish-list. For example, <a href="https://theintercept.com/2018/11/27/green-new-deal-congress-climate-change/">here is how Naomi Klein</a> makes the case to left-wing activists to support Ocasio-Cortez against the establishment Democrats:</p>
<blockquote><p><em>Pulling that [a 45-percent reduction in fossil fuel emissions in 12 years—RPM] off, the [IPCC] report’s summary <a href="https://www.ipcc.ch/news_and_events/pr_181008_P48_spm.shtml">states</a> in its first sentence, is not possible with singular policies like carbon taxes. Rather, what is needed is “rapid, far-reaching and unprecedented changes in all aspects of society.” </em><strong><em>By giving the committee a mandate that connects the dots between energy, transportation, housing and construction, as well as health care, living wages, a jobs guarantee, and the urgent imperative to battle racial and gender injustice, the Green New Deal plan would be mapping precisely that kind of far-reaching change.</em></strong><em> This is not a piecemeal approach that trains a water gun on a blazing fire, but a comprehensive and holistic plan to actually put the fire out. [Naomi Klein, bold added.]</em></p></blockquote>
<p>As Klein’s discussion makes perfectly clear, this really isn’t about climate change at all. That is simply the pretext to fundamentally transform every aspect of society and culture the way progressive leftists have wanted to do even before people talked about “global warming.”</p>
<p>Incidentally, the quixotic pundits and wonks who still plead with conservatives and libertarians to agree to a “carbon tax deal,” should see Naomi Klein in the quotation above spell it out just like so many of her colleagues before her: They are explicitly saying <em>a carbon tax is not close to being enough</em> to achieve their environmental goals.</p>
<h4><strong>An Inconvenient Omission</strong></h4>
<p>There’s one more clue to clinch it for the naïve reader, to realize that the “Green New Deal” really isn’t merely a technical solution to the problem of negative externalities: The word “nuclear” doesn’t appear once in the entire draft legislation for the Select Committee. Isn’t it odd that Ocasio-Cortez and Naomi Klein think we have 12 years to act, in order to save humanity from climate catastrophe, yet they have the time to talk about fixing gender imbalances while they <em>don’t </em>talk about a dispatchable, scalable energy source that is carbon-emission-free? (This source <a href="https://www.eia.gov/tools/faqs/faq.php?id=427&t=3">currently provides</a> 20% of U.S. electricity.)</p>
<p>In fairness, some progressive outlets <em>have </em>grudgingly started talking about nuclear—but even <a href="https://grist.org/series/the-nuclear-option/">the example of Grist</a> only started in January 2018. The obvious explanation here is that these activist progressives don’t <em>really </em>believe their alarmist rhetoric. Imagine someone warning that a killer asteroid was hurtling toward Earth, and we had a mere decade to do something about it. And then these activists spent their time on funding medical clinics to treat society’s downtrodden when the asteroid smashed into the planet, killing billions of people.</p>
<p>Some puzzled onlookers might timidly ask, “Instead of worrying about demographics, shouldn’t we be building lasers or missiles to knock the asteroid off course?” But the activists would explain, “No, promoting heavy weaponry would interfere with our messaging on gun control.”</p>
<p>In that scenario, would you believe the activists who told you we had a decade to act before the asteroid hit? Would their actions lead you to think <em>they </em>believed their own rhetoric?</p>
<h4><strong>Conclusion</strong></h4>
<p>A “Green New Deal” makes no sense on economic grounds, either in spirit or in letter. Even if one endorsed a Keynesian economic framework in which the historical New Deal “worked,” it still would be nonsensical to implement such a program today, with very high (peacetime) debt loads and an economy at officially full employment. What’s more, the historical New Deal did <em>not </em>in fact work, but rather prolonged the Depression. When an economy is already on the ropes, the last thing it needs is for more resources to be allocated politically, or for more regulations to rain down from Washington.</p>
<p>Furthermore, the rhetoric of Ocasio-Cortez and her supporters shows that the Green New Deal is only distantly related to the ostensible scientific problem of greenhouse gas emissions. The people pushing a Green New Deal are using it as a vehicle to advance the traditional potpourri of the left’s political agenda.</p>
<h6><em>Originally published at the <a href="https://www.instituteforenergyresearch.org/regulation/flaws-with-a-green-new-deal-part-1-of-2/">Institute for Energy Research</a></em></h6>
Robert P. MurphyThe "Green New Deal" Debunked (Part 1 of 2)<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/green%20capitol.png?itok=97iyxR5M" width="240" alt="green capitol.png" />45263January 8, 2019 - 11:15 AMInterventionismSocialism and Decivilizationhttps://mises.org/node/5123
<p>On pages 33–35 of my book <em><a href="https://store.mises.org/Socialism-Economic-Calculation-and-Entrepreneurship-P10445.aspx">Socialism, Economic Calculation, and Entrepreneurship</a></em>, I examine the process by which the division of practical entrepreneurial knowledge deepens "vertically" and expands "horizontally," a process that permits (and at the same time requires) an increase in population, fosters prosperity and general well-being, and brings about the advancement of civilization. As I indicate there, this process is based on</p>
<ol><li><p>the specialization of entrepreneurial creativity in increasingly narrow and more specific fields, and in increasing detail and depth;</p></li><li><p>the recognition of the private-property rights of the creative entrepreneur to the fruits of his creative activity in each of these areas;</p></li><li><p>the free, voluntary exchange of the fruits of each human being's specialization, an exchange that is always mutually beneficial for all who participate in the market process; and</p></li><li><p>constant growth in the human population, which makes it possible to entrepreneurially "occupy" and cultivate a rising number of new fields of creative entrepreneurial knowledge, which enriches everyone.</p></li></ol><p>According to this analysis, anything that guarantees the private ownership of what each person creates and contributes to the production process, that defends the peaceful possession of what each person conceives or discovers, and that facilitates (or does not impede) voluntary exchanges (which are always mutually satisfactory in the sense that they mean an improvement for each party) generates prosperity, increases the population, and furthers the quantitative and qualitative advancement of civilization. Likewise, any attack on the peaceful possession of goods and on the property rights that pertain to them, any coercive manipulation of the free process of voluntary exchange, in short, any state intervention in a free market economy always brings about undesired effects, stifles individual initiative, corrupts moral and responsible behavior habits, makes the masses childish and irresponsible, hastens the decline of the social fabric, consumes accumulated wealth, and blocks the expansion of human population and the advancement of civilization, while everywhere increasing poverty.</p>
<p>As an illustration, let us consider the process of decline and disappearance of classical Roman civilization. Though its basic landmarks are easily extrapolated to many circumstances of our contemporary world, unfortunately most people have now forgotten or are completely unaware of that important history lesson; and as a result they fail to see the grave risks now facing our civilization. In fact, as I explain in detail in my classes (and summarize in a video of one of them, on the fall of the Roman Empire [<em><a href="https://www.youtube.com/watch?v=6PcaciZean4">La Caída del Imperio Romano</a></em>], which to my surprise has already been viewed on the Internet by almost 400,000 people in a little over a year), and according to prior studies by authors like Rostovtzeff (<em><a href="http://www.amazon.com/gp/product/0198142315?ie=UTF8&camp=1789&creativeASIN=0198142315&linkCode=xm2&tag=misesinsti-20">The Social and Economic History of the Roman Empire</a><emi>) </emi></em><emi>and Mises </emi><em><emi>(<em><a href="http://mises.org/document/3250/Human-Action">Human Action</a></em>), "</emi></em><emi>what brought about the decline of the [Roman] empire and the decay of its civilization was the disintegration of this economic interconnectedness, not the barbarian invasions" (op. cit., p. 767).</emi></p>
<p>To be precise, Rome was the victim of an involution in the specialization and division of the trading process, as authorities systematically hindered or prevented voluntary exchanges at free-market prices, in the midst of rampant growth in subsidies, in public spending on consumption (<a href="http://en.wikipedia.org/wiki/Bread_and_circuses">"panem et circenses"</a>), and in state control of prices. It is easy to grasp the logic behind these events. Chiefly beginning in the 3rd century, the buying of votes and popularity spread food subsidies ("panem") financed by the public treasury via the "annona," as well as the continual organization of the most lavish public games ("circenses"). As a result, not only were Italian farm owners eventually ruined, but the population of Rome did not cease to grow until it stood at nearly 1 million inhabitants. (Why take on the toil of working one's land when its products cannot be sold at profitable prices, since the state distributes them almost for free in Rome?)</p>
<p>The obvious course of action was to leave the Italian countryside and move to the city, to live off the Roman welfare state, the cost of which could not be borne by the public treasury, and could only be covered by reducing the precious-metal content in the currency (that is, inflation). The outcome was inescapable: an uncontrolled drop in the purchasing power of money, i.e., an upward revolution in prices, to which the authorities responded by decreeing that prices were to remain fixed at their prior levels and imposing extremely harsh sentences on offenders. The establishment of these price ceilings led to widespread shortages (since at the low prices set, it was no longer profitable to produce and seek creative solutions to the problem of scarcity, while at the same time consumption and waste were still being artificially encouraged). Cities gradually began to run out of provisions, and the population began to leave and return to the countryside, to live in much poorer conditions in an autarchy, at mere subsistence level, a regime that laid the foundation for what would later be feudalism.</p>
<p>This decivilization process, which arose from the demagogic socialist ideology typical of the welfare state and of government interventionism in the economy, can be illustrated in a simplified, graphic manner by the reverse of the graphic explanation on page 34 of my aforementioned book, Socialism, Economic Calculation, and Entrepreneurship, in which I describe the process by which the division of labor (or rather, the specialization of knowledge) deepens and civilization advances.</p>
<p>Let us begin at the stage represented by the top line in the chart (T1), which reflects the advanced level of development spontaneously achieved by the Roman market process as early as the 1st century, and which, as Peter Temin has shown (<a href="http://www.aeaweb.org/articles.php?doi=10.1257/089533006776526148">"The Economy of the Early Roman Empire,"</a> <em>Journal of Economic Perspectives</em>, vol. 20, no. 1, winter 2006, pp. 133–151), was characterized by a remarkable degree of institutional legal respect for private property (Roman law), and by the specialization and spread of exchanges in all sectors and factor markets (particularly the labor market, since, as Temin has demonstrated, the effect of slavery was much more modest that has been believed up to now). As a result, the Roman economy of the period reached a level of prosperity, economic development, urbanization, and culture that would not be seen again in the world until well into the 18th century.</p>
<p>The capital letters under each person in figure 1 indicate the ends each actor specializes in and devotes himself to. He then exchanges the fruits of his entrepreneurial effort and creativity (represented by the bulb that "lights up") for those of other actors, and all benefit from each exchange. However, when state intervention in the economy increases (e.g., via price control), exchanges are hindered and decrease, and people find themselves in the stage depicted by the middle line in the chart. They are obliged to reduce the sphere of their specialization by abandoning, for example, ends G and H and concentrating on ends AB, CD, and EF, all with less division of labor, fewer exchanges, and hence a smaller degree of specialization, which requires greater replication and an excess of effort. The obvious result is a drop in the final production of the entire social process, and thus a rise in poverty.</p>
<p>The maximum point of economic decline and recession occurs in the stage shown by the bottom line in the chart (T3), where, when faced with mounting interventionist pressure from the state, continual tax increases, and stifling regulations, people are forced, in order to survive (even if at a level of poverty previously inconceivable), to almost completely abandon the prior division of labor and the exchange process that constitutes the market, to leave the city and return to the countryside to tend livestock and grow their own food, to tan their own leather and build their own shacks, and each person needlessly duplicates the minimum ends and activities required for survival (which we have marked ABCD in the chart). As is logical, productivity falls sharply, and all sorts of shortages occur that reduce the population due to a lack of resources: thus the process of deurbanization and decivilization reaches completion.</p>
<p><a href="http://mises.org/daily/6034/Currency-Debasement-and-Social-Collapse">As Mises indicates</a>,</p>
<blockquote><p>With the system of maximum prices the practice of debasement completely paralyzed both the production and the marketing of the vital foodstuffs and disintegrated society's economic organization.… To avoid starving, people deserted the cities, settled on the countryside, and tried to grow grain, oil, wine, and other necessities for themselves.… The economic function of the cities, of commerce, trade, and urban handicrafts, shrank. Italy and the provinces of the empire returned to a less advanced state of the social division of labor. The highly developed economic structure of ancient civilization retrograded to what is now known as the manorial organization of the Middle Ages.… [The emperors'] counteraction was futile as it did not affect the root of the evil. The compulsion and coercion to which they resorted could not reverse the trend toward social disintegration which, on the contrary, was caused precisely by too much compulsion and coercion [on the part of the state]. No Roman was aware of the fact that the process was induced by the government's interference with prices and by currency debasement. (<a href="http://mises.org/document/3250/Human-Action">op. cit.</a>, pp. 768–769)</p></blockquote>
<p>Mises <a href="http://mises.org/daily/6034/Currency-Debasement-and-Social-Collapse">concludes</a>,</p>
<blockquote><p>A social order is doomed if the actions which its normal functioning requires are rejected by the standards of morality, are declared illegal by the laws of the country, and are prosecuted as criminal by the courts and the police. The Roman Empire crumbled to dust because it lacked the spirit of liberalism and free enterprise. The policy of interventionism and its political corollary, the Fuhrer principle, decomposed the mighty empire as they will by necessity always disintegrate and destroy any social entity. (<a href="http://mises.org/document/3250/Human-Action">op. cit.</a>, p. 769, italics added)</p></blockquote>
<p>Mises's analysis has invariably been confirmed, not only in many specific historical instances (processes of decline and decivilizing involution, e.g., in the north and other parts of Africa; the crisis in Portugal following the <a href="http://en.wikipedia.org/wiki/Carnation_Revolution">"Carnation Revolution"</a>; the chronic social illness that affects Argentina, which became one of the richest countries in the world before World War II, but which today, instead of receiving immigrants, loses population continually; similar processes that are ravaging Venezuela and other populist regimes in Latin America, etc.), but also, and above all, by the experiment of real socialism, which until the fall of the Berlin Wall steeped hundreds of millions of people in suffering and despair.</p>
<p>Also, today, in a fully globalized world market, the decivilizing forces of the welfare state, of syndicalism, of central banks' financial and monetary manipulation, of economic interventionism, of the increasing tax burden and regulations, and of the lack of control in the public accounts threaten even those economies that until now had been considered the most prosperous (the United States and Europe). Now at a historic crossroads, these economies are struggling to rid themselves of the decivilizing forces of political demagogy and union power, as they attempt to return to the path of monetary rigor, budget control, tax reduction, and the dismantling of the tangled web of subsidies, intervention, and regulations that choke the entrepreneurial spirit and infantilize and demoralize the masses. Their success or failure in this endeavor will determine their future destiny, and specifically, whether or not they will continue to lead the advance of civilization as they have until now, or whether, in the case of failure, they will leave the leadership of civilization to other societies that, like the Sino-Asian society, fervently and unapologetically seek to become the key players in the new globalized world market.</p>
<p>It is obvious that Roman civilization did not fall as a result of the barbarian invasions: rather, the barbarians easily capitalized on a social process that was already, for purely endogenous reasons, in marked decline and breaking down.</p>
<p>Mises <a href="http://mises.org/daily/6034/Currency-Debasement-and-Social-Collapse">expresses </a>it this way:</p>
<blockquote><p>The alien aggressors merely took advantage of an opportunity which the internal weakness of the empire offered to them. From a military point of view the tribes which invaded the empire in the fourth and fifth centuries were not more formidable than the armies which the legions had easily defeated in earlier times. But the empire had changed. Its economic and social structure was already medieval. (<a href="http://mises.org/document/3250/Human-Action">op. cit.</a>, pp. 767–768)</p></blockquote>
<p>Furthermore, the empire's degree of regulation, statism, and tax pressure became so great that Roman citizens themselves often submitted to the barbarian invaders as a lesser evil, when they did not actually receive these invaders with open arms. Lactantius, in his treatise, On the Deaths of the Persecutors, written in the year 314-315 AD, <a href="http://www.ccel.org/ccel/schaff/anf07.iii.v.vii.html">states</a>,</p>
<blockquote><p>There began to be fewer men who paid taxes than there were who received wages; so that the means of the husbandmen being exhausted by enormous impositions, the farms were abandoned, cultivated grounds became woodland … And many presidents and a multitude of inferior officers lay heavy on each territory, and almost on each city. There were also many stewards of different degrees, and deputies of presidents. Very few civil causes came before them: but there were condemnations daily, and forfeitures frequently inflicted; taxes on numberless commodities, and those not only often repeated, but perpetual, and, in exacting them, intolerable wrongs. (cited by Antonio Aparicio Pérez, <a href="http://www.worldcat.org/title/la-fiscalidad-en-la-historia-de-espana-epoca-antigua-anos-753-ac-a-476-dc/oclc/237028713">La Fiscalidad en la Historia de España: Época Antigua, años 753 a.C. a 476 d.C.</a>, Madrid: Instituto de Estudios Fiscales, 2008, p. 313)</p></blockquote>
<p>Clearly, this situation closely parallels the current one in many ways, and a legion of writers have already shown that the present level of subsidies and regulations places a demoralizing, intolerable burden on the increasingly harassed productive sector of society. In fact, a few authors, like Alberto Recarte, have had the courage to call for a reduction in "the number of public employees, particularly those whose job it is to regulate, oversee, and inspect all economic activity by imposing costly and extremely interventionist legal requirements" (<a href="http://www.esferalibros.com/libro/el-desmoronamiento-de-espana/">El Desmoronamiento de España</a>, Madrid: La Esfera de los Libros, 2010, p. 126). We must remember that we all depend on the output of private economic activity.</p>
<p>In De Gubernatione Dei (IV, VI, 30), Salvian of Marseilles <a href="http://www.ccel.org/ccel/salvian/govt.iv.vi.html">writes</a>,</p>
<blockquote><p>Meanwhile the poor are being robbed, widows groan, orphans are trodden down, so that many, even persons of good birth, who have enjoyed a liberal education, seek refuge with the enemy to escape death under the trials of the general persecution. They seek among the barbarians the Roman mercy, since they cannot endure the barbarous mercilessness they find among the Romans. Although these men differ in customs and language from those with whom they have taken refuge, and are unaccustomed too, if I may say so, to the nauseous odor of the bodies and clothing of the barbarians, yet they prefer the strange life they find there to the injustice rife among the Romans. So you find men passing over everywhere, now to the Goths, now to the Bagaudae, or whatever other barbarians have established their power anywhere, and they do not repent of their expatriation, for they would rather live as free men, though in seeming captivity, than as captives in seeming liberty. (cited in ibid., pp. 314–315)</p></blockquote>
<p>Finally, in his Seven Books against the Pagans (Madrid: Gredos, VII, 41-7), the historian Orosius <a href="http://sites.google.com/site/demontortoise2000/orosius_book7">concludes</a>,</p>
<blockquote><p>The barbarians came to detest their swords, betook themselves to the plough, and are affectionately treating the rest of the Romans as comrades and friends, so that now among them there may be found some Romans who, living with the barbarians, prefer freedom with poverty to tribute-paying with anxiety among their own people. (italics added)</p></blockquote>
<p>We do not know whether in the future Western civilization, which until now has thrived, will be replaced by that of another people whom even today we might consider "barbarians." However, we must be certain of two things: first, in the midst of the severest recession to ravage the Western world since the Great Depression of 1929, if we fail to apply the essential measures, i.e., deregulation, especially in the labor market, a reduction in taxes and economic interventionism, and control of public spending and the elimination of subsidies, we risk much more than, for instance, the mere preservation of the euro (or for Americans, of the dollar as an international currency);<a class="see-footnote" id="footnoteref1_p1xysmq" title="The social process cannot survive or develop without an institutional framework that disciplines and restricts politicians, unions, and privileged interest groups. Though certainly our authorities were unaware of what they were getting into when they advanced the creation of the euro, under the current circumstances, the euro is fortunately playing that "disciplining" role, at least in Europe's periphery countries, which for the first time in their history, are now forced to take structural measures of economic liberalization in an environment in which the infeasibility and deception that lie at the base of the present welfare state have become evident. In the United States the situation is more dubious. Although sporadic efforts are made to limit the public deficit by movements like the Tea Party and others, the nature of the dollar as the international reserve currency leaves a lot of room for the extravagance of politicians and for unbridled spending." href="#footnote1_p1xysmq">1</a> and second, if we lose the battle of competitiveness in the globalized world market once and for all, and we fall into marked and chronic decline, it will, without a doubt, not be due to exogenous factors, but to our own errors, faults, and moral deficiencies.</p>
<p>Despite the above, I would like to end on an optimistic note. Recessions are painful, and they are often used as a pretext for criticizing the free-market system and increasing regulation and interventionism, thus making matters even worse. Nevertheless, recessions are also the phase in which society gets back on a sound footing, the errors committed are revealed, and everyone is put in his proper place. Recessions are the stage in which the foundation is laid for recovery and an unavoidable return is made to the essential principles that permit society to advance.</p>
<p>It is true that we face many challenges, and that we could very easily become disheartened, and that freedom's foes lurk everywhere. But it is no less true that, in contrast with the culture of subsidies, irresponsibility, the lack of morals, and dependence on the state for everything, there is, surging from the ashes among many young people (and also among some of us who are no longer so young) the culture of entrepreneurial freedom, of creativity and risk taking, of behavior based on moral principles, and, in short, of maturity and responsibility (as opposed to the infantilism our authorities and politicians would restrict us to in order to make us increasingly servile and dependent). To me it is clear who has the best intellectual and moral weapons, and hence, who holds the future. That is why I am an optimist.</p>
<ul class="footnotes"><li class="footnote" id="footnote1_p1xysmq"><a class="footnote-label" href="#footnoteref1_p1xysmq">1.</a> The social process cannot survive or develop without an institutional framework that disciplines and restricts politicians, unions, and privileged interest groups. Though certainly our authorities were unaware of what they were getting into when they advanced the creation of the euro, under the current circumstances, the euro is fortunately playing that "disciplining" role, at least in Europe's periphery countries, which for the first time in their history, are now forced to take structural measures of economic liberalization in an environment in which the infeasibility and deception that lie at the base of the present welfare state have become evident. In the United States the situation is more dubious. Although sporadic efforts are made to limit the public deficit by movements like the Tea Party and others, the nature of the dollar as the international reserve currency leaves a lot of room for the extravagance of politicians and for unbridled spending.</li>
</ul>Jesús Huerta de SotoSocialism and Decivilization<img typeof="foaf:Image" src="https://mises.org/sites/default/files/styles/slideshow/public/static-page/img/roman1.PNG?itok=pY7WEeXB" width="240" alt="roman1.PNG" />5123December 31, 2018 - 2:00 PMInterventionismZoning and the Free Markethttps://mises.org/node/15337
<p>Much is often made of allowing "consenting adults" to exercise their freedoms unhindered by government regulation. Unfortunately, this presumption is often limited to the realm of activities like gambling and prostitution. But should not consenting adults also be allowed freedom in larger economic matters such as real estate?</p>
<p>In this 1981 lecture, Walter Block discusses the importance of allowing private markets — and not government planners — to decide how land and housing is used by those who buy, sell, and rent it.</p>
<p>Presented at the School of Law, Dalhousie University (Halifax, Nova Scotia, Canada) on 29 January 1981. [1:30:56]</p>
Walter BlockZoning and the Free Market<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/Lectures_20140819_750x516.jpg?itok=LmzPR6un" width="240" alt="Individual Lectures" title="Individual Lectures" />15337December 28, 2018 - 2:00 PMInterventionism100 Percent Reserve Banking and the Path to a Single-Country Gold Standardhttps://mises.org/node/38400
<p><a href="https://mises.org/sites/default/files/Quarterly%20Journal%20of%20Austrian%20Economics%2019%20no%201%20Spring%202016.pdf"><strong>Quarterly Journal of Austrian Economics 19, no. 1 (Spring 2016): 29–64</strong></a></p>
<p><strong>ABSTRACT</strong>: One hundred percent reserve banking is an essential foundation and prerequisite for a country to establish long-term financial stability and sustained economic growth. It is also an essential element for a country contemplating the adoption of a stable gold standard monetary system. Debt money, i.e., debt created by banks, was once called <em>malum per se</em>, a thing that is evil in its nature. It has supported excessive government debt, inflated speculative bubbles, fueled inflation, reduced investment and growth, and resulted in an unjust redistribution of wealth. In this paper, we discuss some of the detrimental consequences of fractional reserve banking and outline its abolition as the principal reform before one or more countries can establish a viable gold standard.</p>
<h6>KEYWORDS: fractional reserve banking, financial repression, gold standard, inflation, money</h6>
<h6>JEL CLASSIFICATION: E00, E4, E52, F33, G01, G21</h6>
<hr /><p>The most challenging monetary reform in any country is the adoption of 100 percent reserve banking, or 100 percent money. Governments and banks have resisted this reform. A domestic gold standard becomes simply an appendix to 100 percent reserve banking or money by connecting money to the supply of gold. A 100 percent reserve banking system separates money from debt obligations; a bank can no longer create money in the form of demand deposits; and money would be independent of fluctuations in debt. A 100 percent reserve banking system was practiced by the Bank of Amsterdam (1609), the Bank of Hamburg (1619), the Postal System, and other 100 percent depository institutions that restricted their business to purely safe depository and transfer functions.</p>
<p>A fundamental condition for establishing a stable banking system has been the abolishment of fractional reserve banking, i.e., debt money, in favor of 100 percent reserve banking. This condition was stipulated by David Hume (1752), William Gouge (1833), Amasa Walker (1873), Charles H. Carroll (1850s), Frederick Soddy (1934), the authors of the Chicago Plan<a class="see-footnote" id="footnoteref1_c1805at" title="The authors of the Chicago Plan were: Henry Simons, Frank Knight, Aaron Director, Garfield Cox, Lloyd Mints, Henry Schultz, Paul Douglas, and A. G. Hart. Professor Irving Fisher of Yale University was a strong supporter of the Plan. His book, 100 Percent Money (1936), was an attempt to win support for the plan among academics and policy makers." href="#footnote1_c1805at">1</a> (1933), Irving Fisher (1936), Ludwig von Mises (1953), Murray Rothbard (1962), Maurice Allais (1999), and a number of other economists and authors. They essentially proposed a two-tier banking system:</p>
<p class="indent2">i. 100 percent reserve banking strictly for depository and payments operations<br />ii. Investment banking for financial intermediation and channeling savings into investments</p>
<p>One hundred percent reserve banking has been recommended for a number of reasons that include avoiding: (i) frequent bank failures and losses suffered by depositors;<a class="see-footnote" id="footnoteref2_2lkibs4" title="The Bank of England, founded in 1694, suspended convertibility of its notes into gold and silver as early as 1696, and not infrequently thereafter. It suspended convertibility during 1797–1821." href="#footnote2_2lkibs4">2</a> (ii) wide expansion and contraction of the money supply that created speculative bubbles, crashes, deep recessions, and loss of output and employment; (iii) unjust wealth redistribution via fictitious credit in favor of borrowers and speculators; (iv) debt money that was too costly to use, since interest has to be paid on outstanding debt; and (v) debt money contracts if interest cannot be paid. With fractional reserve banking, many banks have been bankrupted with ominous financial losses for their depositors, or by taxpayers through subsidized deposit insurance schemes and bailouts. Hence, many writers deemed it essential to separate the deposit of money from the lending and debt obligations.<a class="see-footnote" id="footnoteref3_45c51q3" title="With this separation, there is no need for insuring the safety of bank deposits through corporations such the Federal Deposit Insurance Corporation (FDIC)." href="#footnote3_45c51q3">3</a> This separation was needed to sever the relation between the money supply and debt, so money would not fluctuate with debt, and to insure that banks hold and lend true savings and do not issue fictive credit. Money should not be created and destroyed through debt expansion and contraction via the credit multiplier.</p>
<p>The depository system is a fundamental feature of a modern economy and could be provided by private banks, or the state (e.g., Bank of Amsterdam and Bank of Hamburg). It accepts deposits for safekeeping and undertakes domestic and foreign payments against fees paid by the depositors. Some authors have suggested that the government could provide the deposit system through a banking and postal system so as to minimize fees and increase the quantity of money for the economy (Gouge, 1833; Simons, 1947). Investment banks in implementing their investment banking function create no money and accept no demand deposits; they borrow or issue equities and debt securities; and lend or buy securities. Essentially, investment banks would operate as other businesses, they issue shares and attract capital that they invest on behalf of their shareholders.</p>
<p>Debt-based money is associated with the advent of fractional reserve banking. By definition, the state grants a charter for a bank to create money. In countries with fractional reserve banking, debt money made economies navigate from booms to busts (Juglar, 1862) and destroyed the gold standard.<a class="see-footnote" id="footnoteref4_o5waem5" title="Eminent writers stressed that debt money would certainly evict gold: David Hume (1752), Charles Jenkinson (1805), US Presidents Thomas Jefferson and Andrew Jackson, William Gouge (1833), Charles Holt Carroll (1850s), and Amasa Walker (1873)." href="#footnote4_o5waem5">4</a> Ironically, it was the United Kingdom, the cornerstone of the gold standard and the world financial center, that dealt a fatal blow to the gold standard in 1931, which many of its eminent economists called a barbarous system. It was followed immediately by the United States, another model of the gold standard, abolishing gold money and sequestering the gold from its citizens in 1933, with the rest of the world following along. Proponents of debt money referred to the gold standard as gold shackles. But it was debt and paper money that have led to frequent financial crises after the gold standard was abolished (e.g., Greece 2009–2015, US and Eurozone 2009–2015, etc.). Moreover, debt-money system cannot stand on its own; it needs a central bank for liquidity and occasional government bailouts. It was the debt system that undermined the Bretton Woods gold exchange standard in 1971. Endless regulations in the 19th and 20th centuries have not prevented rapid creation of debt and financial booms and busts.</p>
<p>Money has been considered a principal pillar of the human civilization; it has enabled the development of commerce, industry, exchange and travel within and across countries and continents, and high level of scientific progress. If this pillar is undermined, economic decline follows, and social stability is put at risk.<a class="see-footnote" id="footnoteref5_hjzjaxj" title="Examples of horrifying hyperinflations that ruined the real economy were John Law’s system in France (1716–1720), the French assignats (1789–1795), the US continental currency (1785–1790), and the German hyperinflation (1919–1923). In all these episodes, paper became worthless, the economy lost its money, and famine spread in the country." href="#footnote5_hjzjaxj">5</a> With the advent of fractional reserve banking, debt-based money has risen to prominence. In the pursuit of gains from interest on fictitious loans, banks and central banks kept issuing debt money, out-of-thin air, until the breakout of a financial crisis. Debt money calls for more debt to provide for rapidly rising prices, replace repaid debt, and pay interest. The central bank and banks validate any price and wage rise through more debt money. As soon as the debt process slows down or hits general bankruptcy, a severe financial crisis breaks out and wipes a large part of the debt money causing severe economic and financial disorders.<a class="see-footnote" id="footnoteref6_6y4w0d5" title="Irving Fisher (1936) noted that US money was reduced by 35 percent during 1929–1933 following the collapse of debt money. He strongly advocated 100 percent reserve money so to eliminate the banks’ power in creating and destroying money." href="#footnote6_6y4w0d5">6</a> With debt organized as currency (Carroll, 1850s), financial crises became frequent; the most ominous was the Great Depression (1929–1936). The 2008 financial crisis was another ominous collapse of the debt money. Each financial crisis destroys money (Frederick Soddy, 1934; Irving Fisher, 1936), paralyses the economy, and spreads bankruptcies and human hardship. Governments resort to even pushing more interest-debt in order to cope with the disorders of the financial crisis. Hence, each economy is entangled in a vicious circle of debt followed by crises.</p>
<p>A 100 percent (or at least a long way toward 100 percent) reserve banking system or 100 percent money has become pressing in view of growing money disorders in the world. Many eminent writers had urged the abolition of debt-money and proposed reforms along the principles of 100 percent reserve banking and risk-sharing investment banking.<a class="see-footnote" id="footnoteref7_axy5r2y" title="We may cite David Hume (1752), Thomas Jefferson, Andrew Jackson, William Gouge (1833), Charles. H. Carroll (1850s), Amasa Walker (1873), Irving Fisher (1936), the numerous authors of the Chicago Plan (1933), Ludwig von Mises (1953), Murray Rothbard (1994), and Maurice Allais (1999)." href="#footnote7_axy5r2y">7</a> Despite repeated calls for reforms during the 18th–20th centuries, both governments and financial interests have remained adamantly against abolishing debt money. In what follows, we address the following themes:</p>
<p class="indent2">• The nature of debt money<br />• Inherent inflationism, instability, and uncertainty of debt money<br />• Some notable rejections of debt money and proposals for 100 percent reserve banking<br />• Suggested reforms for reintroducing 100 percent reserve banking and a domestic gold standard<br />• 100 percent reserve banking and a convertible 100 percent domestic gold standard<br />• Structural reforms to support 100 percent money</p>
<h4>The Nature of Debt Money</h4>
<p>Debt money has been rising without limit in almost every country at rates that far exceed real GDP growth. Money supply, measured by M2 (currency plus deposits) may increase at a double-digit rate for decades in many countries. The source of this increase is simply debt. Simons (1947) stated:</p>
<p class="indent2">We have reached a situation where private-bank credit represents all but a small fraction of our total effective circulation medium. ... Thus the State has forced the free-enterprise system, almost from the beginning, to live with a monetary system as bad as could well be devised. ... An enterprise system cannot function effectively in the face of extreme uncertainty as to the action of the monetary authorities or, for that matter, as to monetary legislation. We must avoid a situation where business venture becomes largely a speculation on the future of monetary policy. (p. 55)</p>
<p>If we examine the balance sheet of the US Federal Reserve (Fed), we see that gold and foreign assets ($30 billion) are negligible in relation to total liabilities ($4,452 billion), i.e., 0.6 percent. All money expansion was through money creation, with money becoming overly dependent on domestic debt. Moreover, as the latter expands, imports tend to rise faster while exports tend to shrink, which results in reduced net foreign assets. Moreover, debt money is costly; banks earn interest and commissions on the outstanding debt.</p>
<p>Debt money has fueled inflation.<a class="see-footnote" id="footnoteref8_ihqxccx" title="Two definitions of inflation are proposed. The most common one is a persistent general rise of prices. Another definition considers the general rise of prices as an effect of a rise of money supply that is not offset by a corresponding increase in the demand for broad money so that a fall in the objective exchange-value of money must occur. In this definition, inflation is measured by the increase in broad money supply." href="#footnote8_ihqxccx">8</a> The latter has been considered as a form of fraud, which has to be eradicated.<a class="see-footnote" id="footnoteref9_hpro1gy" title="Inflation is an inherent feature of paper and debt money. It emanates from money created out-of-thin air in form of a monetization of fiscal deficits or issues of unbacked loans. Commodities are purchased against paper and not commodities. The practice of appropriating wealth unjustly was severely condemned by John Locke (1691)." href="#footnote9_hpro1gy">9</a> It is a fallacy that inflation stimulates employment and growth.<a class="see-footnote" id="footnoteref10_158ur2h" title="Bastiat, The Seen and the Unseen, 1877." href="#footnote10_158ur2h">10</a> Inflation is a tax that unduly transfers free wealth to one group at the expense of another group. The income distribution is altered by a heavy inflation tax, which deprives labor from a sizable part of its real contribution to real GDP. At a high rate of money depreciation, holders of cash will get rid of it as soon as they receive it. Financial savings is discouraged (McKinnon, 1973; Shaw, 1973). Forced savings will replace voluntary savings, imposed upon creditors and workers through the inflation tax (Hayek, 1932). Production will be discouraged as producers hike prices and reduce output.<a class="see-footnote" id="footnoteref11_r6crs2l" title="In an inflationary context, producers reconstitute their money working capital through increasing prices and reducing quantities. In a non-inflationary context, they have to generate money working capital through higher quantities sold. They are compelled to produce much more to generate cash. The drop in prices improves in turn external competitiveness and exports." href="#footnote11_r6crs2l">11</a> Exports will be reduced. Figure 1 portrays the Consumer Price Index (CPI) for the US and the Retail Price Index (RPI) for the UK under the metallic system during 1800–1913. In both countries, there was a significant trickling down of productivity gains and technical change in form of long-term trends of price declines. In 1913, the US CPI stood at 79 (1800 = 100) and the UK RPI stood at 82 (1800 = 100). Workers had shared in the fruits of growth (Farrer, 1898). Such sharing has been diminished under the debt money in almost every country where this system is in effect. Figure 2 portrays the inherent inflationary feature of the debt-money system supported by central banking in the UK and the US. Inflation tax has become permanent, penalizing the holders of the currency, workers, pensioners, and creditors. The inflation tax benefits the government, debtors, and speculators. Inflation is vital for the perpetuation of the debt system. There has been little trickling down of productivity gains to consumers.<a class="see-footnote" id="footnoteref12_brakzr8" title="Mises (1953) noted that CPI underestimated inflation during 1922–1929, a period characterized by high productivity gains. Let the recorded CPI be 3 percent, let productivity gains be 7 percent; the true CPI would be 10 percent." href="#footnote12_brakzr8">12</a> In 2013, US CPI stood at 1,294 (1945 = 100), and the UK RPI stood at 3,766 (1945 = 100).</p>
<p> </p>
<p><strong>Figure 1: The United Kingdom and the United States Annual Price Indices, 1800–1913</strong></p>
<p><img src="https://mises-media.s3.amazonaws.com/Askari_Krichene_Figure1.jpg" style="height: 353px; width: 600px;" /></p>
<p> </p>
<p><strong>Figure 2: The United Kingdom and the United States Annual Price Indices, 1945–2013</strong></p>
<p><img src="https://mises-media.s3.amazonaws.com/Askari_Krichene_Figure2.jpg" style="width: 600px; height: 353px;" /></p>
<p> </p>
<h4>Inherent Inflationism, Instability, and Uncertainty of Debt Money</h4>
<p>The debt money model has resulted in adverse social consequences in many countries where it has been adopted.<a class="see-footnote" id="footnoteref13_3uu0acn" title="Interest-based bank money has been severely condemned by Thomas Jefferson, William Gouge, Charles Holt Carroll, Frederick Soddy, Amasa Walker, and many others. Mises, Rothbard, Irving Fisher, authors of Chicago Plan, Maurice Allais, and many authors proposed abolishing debt money and its replacement by a non-interest money." href="#footnote13_3uu0acn">13</a> Recurring financial crises and ensuing economic dislocation have been its inherent features. In each debt crisis episode, economic prosperity was reversed into decline and mass-unemployment as demonstrated by the 2008 financial crisis. Being interrelated by a web of trade, banks and capital flows, a crisis breaking out in one country spreads to other countries. Fractional reserve banking was a violation of the original and authentic 100 percent reserve banking that characterized goldsmith houses as well as the Bank of Venice, the Bank of Amsterdam, and the Bank of Hamburg.<a class="see-footnote" id="footnoteref14_2jbqe0c" title="These institutions were created as depository and payments institutions and not to economize on gold and silver, which were abundant in supply to the point of causing high inflation worldwide." href="#footnote14_2jbqe0c">14</a> It developed very fast in Europe and the US during the 18th–19th centuries mainly because of the leverage it provides to bank owners from the emission of banknotes and discounts, and ease of obtaining charters.</p>
<p> </p>
<p><strong>Figure 3: Monthly Central Bank Interest Rates, 2000–2013</strong></p>
<p><img src="https://mises-media.s3.amazonaws.com/Askari_Krichene_Figure3.jpg" style="width: 600px; height: 353px;" /></p>
<p>By turning money into a policy tool, to secure full-employment of labor, devalue exchange rates, and inflate asset and housing prices, central bank actions could become somewhat arbitrary.<a class="see-footnote" id="footnoteref15_w2jexlw" title="Friedman (1959) opposed the discretion power of the Fed; he proposed a fixed rule according to which money supply ought to increase at about 2 percent-3 percent. He reiterated that the Fed could only control the money supply; it cannot control the unemployment rate, the interest rate, or the rate of inflation." href="#footnote15_w2jexlw">15</a> Simons deplored money as an instrument policy and called discretionary policy as a form of lawlessness. He urged the abolition of fractional reserve banking and central banking, and the creation of a “National Monetary Authority” that controls money according to fixed rules. The systemic risk and uncertainty could be described by the cheap money policy of major central banks as portrayed by the interest rates in Figure 3. The Fed practiced a repressive policy, which lowered money rate to 1 percent during 2002–2004 under the guise of fighting deflation at a time the economy was operating at near full-employment for more than a decade. Credit rose at 12 percent year at the expense of creditworthiness; asset, housing, and commodities prices spiked. A financial collapse followed thereafter in 2008, creating massive unemployment in the US and Europe. After 2008, the Fed forced interest rates to near zero, this time, to fight unemployment. Hence, the Fed used a cheap money policy as a panacea for both diseases. The Fed decided to inflate money under quantitative easing programs; it hiked up without any restraint its credit to $4.5 trillion in 2015 from $0.8 trillion in 2008 (Figure 4).<a class="see-footnote" id="footnoteref16_fc9hu0r" title="Excess reserves of banks at the Fed were $2.5 trillion in December 2015. If this amount is drawn down, credit expansion will be too gigantic and will increase credit risk as well as inflation." href="#footnote16_fc9hu0r">16</a> This gigantic money-out-of-thin air printing was aimed at monetizing record fiscal deficits and pushing cheap loans in the economy. The Fed, and most politicians and academics are convinced that near-zero interest and unlimited money were most appropriate policy for full-employment and economic growth.</p>
<p>Fed’s policy has in part led the Eurozone and other countries into monetary difficulties. As long as the dollar is a reserve currency, the Fed faces no external constraint in printing as much money as it wishes and in setting interest rates at near zero. The latter measure is dangerously distortive and assumes that real capital supply is overly abundant in relation to demand for capital. The danger of this policy was already established by the 2008 financial crisis.</p>
<p> </p>
<p><strong>Figure 4: The Federal Reserve Credit, 2002–2014 (Trillions of Dollars)</strong></p>
<p><img src="https://mises-media.s3.amazonaws.com/Askari_Krichene_Figure4.jpg" style="width: 600px; height: 353px;" /></p>
<p>Debt money created too much uncertainty. The monetary base, credit, interest rates, exchange rates, asset prices and commodity prices are all moving in a most unpredictable and volatile way. Huge resources are devoted to hedging against high volatility of exchange rates and asset prices, which increases inefficiencies. In stable markets, hedging resources would have been used for productive investment. </p>
<p>With near-zero interest rates and cheap money, the US government debt skyrocketed to about $18 trillion in 2014 (103 percent of US GDP) and is still rising due to large deficits. Private debt had already reached bankruptcy point in 2008 and is still rising fast. The huge indebtedness makes inflation the only way out of debt. Most likely, the Fed will maintain ultra-cheap policy for some time, since any tightening of money policy will send debt into bankruptcy and result in a crash of asset prices.</p>
<p>Only reserve currency countries, today principally the United States, can afford the luxury of near-zero interest rates without setting off hyperinflation as happened in Germany 1919–1923. In 2015, central bank interest rates were 0.08 percent (US), 0.20 percent (Eurozone), 10 percent (Brazil), and 10 percent (India) (Figure 4). The contrast is obvious. Being non-reserve currency countries, Brazil and India could not afford to set interest rates at near zero. They face a foreign exchange constraint. Low interest rates would fire up inflation, undermine their banking sector, and destroy their export sector.</p>
<p>Setting interest rates at zero or near zero is most distortive policy. It leads to unlimited borrowing by subprime markets, encourages consumption through loans that may never be repaid, it consumes savings and depletes capital, and by introducing distortions enables mal-investment. It confiscates real capital from one group in favor of the group who benefits from cheap money. It exposes the banking sector to significant interest and credit risks. It pushes up asset and commodity prices, and creates an environment of economic uncertainty. Speculation becomes intense. Income and wealth inequality becomes aggravated. The harmful effects of cheap money policy appear only when a financial crisis breaks out. Abolition of fractional reserve banking is the reform that would reduce the depletion of capital, volatility, and ominous free redistribution of wealth via inflationism. Under a gold standard, low interest rates would immediately drain all the gold from the country, and force gold suspension as happened in the UK in 1931 and the US in 1971.</p>
<h4>Some Distinguished Criticisms of Debt Money and Proposals for 100 Percent Reserve Banking</h4>
<p>Fractional reserve banking has provided the foundation for high leverage<a class="see-footnote" id="footnoteref17_kroccab" title="In 1694, the Bank of England made a loan to the government; it immediately monetized the loan and issued banknotes in equal amount, extending more loans to both the government and business. Through leverage, the bank earned interest income on capital, which it did not possess." href="#footnote17_kroccab">17</a> and swindling schemes, inflation of banknotes, financial crises resulting in economic dislocation and bankruptcies. As a result, numerous authors have called for a definitive end of fractional reserve banks, a cancellation of their charters, and the re-introduction of 100 percent reserve banking and money. A partisan of gold and 100 percent money, David Hume (<em>Political Discourses</em>) wrote: “of those institutions of banks, funds, and paper credit, with which we are in the kingdom so much infatuated. These render paper equivalent to money (i.e., gold), circulate it throughout the whole state, make it supply the place of gold and silver. ...” (Hume, 1752) The same discredit was held by Charles Jenkinson, Earl of Liverpool (1805): “Paper currency, which is carried to so great an extent, that it is become highly inconvenient to Your Majesty’s subjects, and may prove in its consequences, if no remedy is applied, dangerous to the credit of the kingdom.”</p>
<p>Aware of the danger of debt-money, the US Third President Thomas Jefferson wanted to abolish fractional reserve banking and preserve metallic money. In fact, he opposed the renewal of the charter of the First Bank of the United States. Witnessing the severe dislocation caused by banks and their corrupt nature, President Andrew Jackson pronounced to a delegation of bankers discussing the re-charter of the Second Bank of the United States in 1832: “You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.” He abolished central banking in the United States and allowed the country to enjoy sustained prosperity. The re-establishment of central banking in 1913 with the Federal Reserve inflicted on the US its worst economic depression during 1929–1936, and has been since destabilizing the economy and falsifying prices and income distribution.<a class="see-footnote" id="footnoteref18_ddo5mql" title="Ron Paul (2009) considered “the creation of the Fed the most tragic blunder ever committed by Congress. The day it was passed, old America died and a new era began. A new institution was born that was to cause the unprecedented economic instability in the decades to come. The longer we delay a conversion to sound money and away from central banking, the worse our crises will grow and the more the government will expand at the expense of our liberties. Our wealth is drained, our productivity is sharply diminished. Our freedoms are eroded. We have been through nearly a hundred years of this same repeating pattern, so it is time to wise up and learn something. When the printing presses are available to the government and the banking cartel, they will use them rather than do the right thing.”" href="#footnote18_ddo5mql">18</a></p>
<p>Maurice Allais wrote (1999): “In essence, the present creation of money, out of nothing, by the banking system is, I do not hesitate to say it in order to make people clearly realize what is at stake here, similar to the creation of money by counterfeiters, so rightly condemned by law. In concrete terms, it leads to the same results.” Bastiat (1877) deplored the redistributive injustice of paper inflation. It steals wealth from losers and showers it for free on the gainers. He wrote:</p>
<p class="indent2">I must also inform you that this depreciation, which, with paper, might go on till it came to nothing, is effected by continually making dupes; and of these, poor people, simple persons, workmen and countrymen are the chief. […] Sharp men, brokers, and men of business, will not suffer by it; for it is their trade to watch the fluctuations of prices, to observe the cause, and even to speculate upon it. But little tradesmen, countrymen, and workmen will bear the whole weight of it. (Bastiat, [1849] 2011, p. 131)</p>
<p>Carroll (1850s) severely condemned the redistributive injustice of fictive money and credit, favorably quoting Daniel Webster: “that of all the contrivances for cheating mankind, none has been more effectual than that which deludes them with paper money. This is the most effectual of inventions to fertilize the rich man’s field with the sweat of the poor man’s brow.” (Carroll, [1856] 1972, p. 35) Carroll noted that “the truth is, an expanded and consequently cheap currency is the most costly and wasteful machinery a nation can possess; the history of the world shows it to be uniformly unprofitable or disastrous. … There was never a greater mistake in any science, and never one so fatal to the stability of property and the well-being of society.” (Carroll, [1858] 1972, p. 76) Carroll deplored the devastating effects of paper money. He stated that “the value of money is regulated to disorder, to the impairing of contracts, and to the confusion of all just ideas regarding the rights of property, as effectually by the powers exercised by the States in granting bank charters, with authority to issue bills of credit.” (Carroll, [1855] 1972, p. 6) He described the notion of “price without value”; namely, currency generated by bank lending pours forth only to drive up prices without creating additional value.<a class="see-footnote" id="footnoteref19_qpndhyh" title="Figure 1 showed that an item that cost £1 in 1945 would cost £38 in 2013." href="#footnote19_qpndhyh">19</a></p>
<p>In 1833, William Gouge noted: “Our American Bankers have found that for which the ancient alchemists sought in vain; they have found that which turns everything into gold — in their own pockets; and it is difficult to persuade them that a system which is so very beneficial to themselves, can be very injurious to the rest of the community.” (Gouge, 1933, p. 227) He regretted the evils caused by banks of issues. These institutions constantly altered the measures of value, caused uncertainty to trade, and conferred undeserved advantages on some men over others. He stated: “It has always been my opinion, that of all evils which can be inflicted on a free state, banking establishments are the most alarming. They are the vultures that prey upon the vitals of the Constitution, and rob the body politic of its life-blood.” (Gouge, 1833, p. 111)</p>
<p>Gouge stressed the redistributive evils of bank money.</p>
<p class="indent2">It made a lottery of all private property. These Banks, moreover, give rise to many kinds of stock-jobbing, by which the simple-minded are injured and the crafty benefitted. …They see wealth passing continually out of the hands of those whose labor produced it, or whose economy saved it, into the hands of those who neither work nor save. The natural reward of industry then goes to the idle, and the natural punishment of idleness falls on the industrious. The reckless speculator, who has no capital of his own, but who operates extensively on the capital of other people, has much cause to be well pleased with this system. (Gouge, 1833, p. 31)</p>
<p>Gouge rejected the notion of over-production as pure nonsense as huge human needs in food, shelter, medication, etc., in every country remain unfulfilled; he attributed the business disruption to the disappearance of fictive money created by banks.<a class="see-footnote" id="footnoteref20_5a50d4h" title=" Irving Fisher (1936) explained the Great Depression (1929-1936) by the evaporation of bank money. His reform plan (100 percent money) urged the abolition of fractional reserve banking." href="#footnote20_5a50d4h">20</a> He rejected the notion of elastic money, which underlined the Federal Reserve Act in 1913. He noted that</p>
<p class="indent2">the flexibility or elasticity of Bank medium is not an excellence, but a defect, and that “expansions” and “contractions” are not made to suit the wants of the community, but from a simple regard to the profits and safety of the Banks. The uncertainty of trade produced by these successive “expansions” and “contractions,” is but one of the evils of the present system. That the Banks cause credit dealings to be carried to an extent that is highly pernicious — that they cause credit to be given to men who are not entitled to it, and deprive others of credit to whom it would be useful. (Gouge, 1833, p. 136)</p>
<p>He rejected the notion that banks make money plentiful, saying,</p>
<p class="indent2">Banks make money plenty. Nay, they make real money scarce. As Bank notes are circulated, gold and silver are driven away. It is contrary to the laws of nature that two bodies should fill the same space at the same time; and no fact is better established than that, where there are two kinds of currency authorized by law or sanctioned by custom, that which has the least value will displace the other. (Gouge, 1833, p. 45)</p>
<p>Gouge challenged the principle that paper was cheaper than specie. That paper money has some advantages must be admitted; but its abuses are also inveterate. Gouge rejected also government paper stating that: “Government issues of paper would be incentives to extravagance in public expenditures in even the best of times; would prevent the placing of the fiscal concerns of the country on a proper basis, and would cause various evils. Further than this, Government should have no more concern with Banking and brokerage than it has with baking and tailoring.” In terms of reforms, Gouge was ahead of both the 1933 Chicago Plan and Irving Fisher’s <em>100 Percent Money</em> (1936). For Gouge, debt-money is an evil that has no remedy, except be abolished or extinguish itself through bankruptcy or when paper become worthless. He stated:</p>
<p class="indent2">[N]o legislative enactments can afford an adequate remedy for the evils which flow from incorporated paper money Banks. The system is, to use the language of the lawyers, <em>malum per se</em> — or a thing which is evil in its nature. The very principle of its foundation is wrong. No immunities should, in a Republican Government, be granted to any, save those which are common to all. (Gouge, 1833, p. 52)</p>
<p>And, “’You may say what you will, paper is paper, and money is money.’” (Gouge, 1833, p. 232)</p>
<p>Gouge proposed prohibition of all incorporated paper money banks; that is, to eliminate their privileges of limited liability and note issue. In their place he would have banks subject to unlimited liability, lending only their own capital plus savings deposits (time deposits) and maintaining a hundred percent specie reserve. “With private Banks, and public Offices of Transfer and Deposit, we should have all that is good in the present system, without the evil.” (Gouge, 1833, p. 230) For Gouge, money is metallic:</p>
<p class="indent2">The high estimation in which the precious metals have been held, in nearly all ages and all regions, is evidence that they must possess something more than merely ideal value. It is not from the mere vagaries of fancy, that they are equally prized by the Laplander and the Siamese. It was not from compliance with any preconceived theories of philosophers or statesmen, that they were, for many thousand years in all commercial countries, the exclusive circulating medium. Men chose gold and silver for the material for money, for reasons similar to those which induced them to choose wool, flax, silk, and cotton, for materials for clothing, and stone, brick, and timber, for materials for building. They found the precious metals had those specific qualities, which fitted them to be standards and measures of value, and to serve, when in the shape of coin, the purposes of a circulating medium…. (Gouge, 1833, p. 10).</p>
<p class="indent2">No instance is on record of a nation’s having arrived at great wealth without the use of gold and silver money. Nor is there, on the other hand, any instance of a nation’s endeavoring to supplant this natural money, by the use of paper money, without involving itself in distress and embarrassment. (Gouge, 1833, p. 17)</p>
<p>Gouge was cognizant of the time dimension of reform:</p>
<p class="indent2">[T]he sudden dissolution of the banking system, without suitable prepa-ration, would put an end to the collection of debts, destroy private credit, break up many productive establishments, throw most of the property of the industrious into the hands of speculators, and deprive laboring people of employment. …[T]he system can be got rid of, without difficulty, by prohibiting, after a certain day, the issue of small notes, and proceeding gradually to those of the highest denomination. (Gouge, 1833, p. 138)</p>
<p class="indent2">All that it will be necessary for Congress to do, will, probably, be to declare that, after a certain day, nothing but gold and silver shall be received in payment of dues to Government, and that no corporation shall be an agent in the management of its fiscal concerns. The people will then begin to distinguish between cash and credit; and public opinion will operate with so much force on state governments, that they will, one by one, take the necessary measures for supplanting paper by metallic money. (Gouge, 1833, p. 234)</p>
<p>The obstacles to reform noted by Gouge would not be very different from those of today. Besides political and deep-vested financial groups, Gouge recognized a degree of ignorance of people about the nature of the paper system.</p>
<p class="indent2">Their only misfortune was, being ignorant of the principles of currency, and having rulers as ignorant as themselves. Certain individuals who have never caught a glimpse of a more improved state of society, boldly affirm that it cannot exist: they acquiesce in established evils, and console themselves for their existence by remarking that they could not possibly be otherwise. (Gouge, 1833, p. 227)</p>
<p>Henry Ford once said, “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Holding similar views as Gouge and Carroll, the 1921 Nobel Prize winner in chemistry, Frederick Soddy (1934), condemned debt money as a form of legal swindling and counterfeiting and a violation of democracy. He accused it of sending millions of workers into unemployment and poverty and presenting a stumbling block to progress of technology, full employment, and the smooth distribution of the produce of industry. He urged abolition of debt-money and reconstitution of mints that would issue a state paper currency as a relief from taxation. Aware of hyperinflations in Germany, Austria, and many other countries, he recommended that state paper be regulated by a stable price index.</p>
<p>The money system condemned by Gouge, Carroll, and Walker was superior to the money system that has become deeply rooted since early 20th century. During their times labor, capital, and commodities markets were competitive with no customs barriers, no government-set prices and wages, no central bank, no labor unions, no formidable taxation, and oversized government.<a class="see-footnote" id="footnoteref21_y4z9kea" title="During the 19th century, labor markets recovered very quickly from depression caused by banking failure through a free market mechanism. In the depth of the Great Depression, with unemployment close to 25 percent, the US hiked up wage rates tremendously in the effort to stimulate spending. Not surprisingly, unemployment remained above 19 percent until the breakout of the war (1939–1944). With the war, unemployment fell to less than 1 percent." href="#footnote21_y4z9kea">21</a> Simons (1947) lamented the erosion of competition, and the institutions that control capital and labor market. He was appalled by the use of government force in money area and money as policy tool, often referring to central bankers as “dictators” who inflicted great uncertainty and upheavals on the economy; he deplored the wide contraction and expansion of the money supply and the consequent alteration in the value of contracts which he called a perverse elasticity. He deemed that too much uncertainty was created needlessly by money policy. He strongly supported 100 percent money and abolition of both central banking and fractional reserve banking. Opposition to fractional reserve banking and its pillar central banking was not limited to the monetary system but also to the economic system it helped to shape in the form of too much government, too-powerful interest groups, and a totally rigid price and wage structure.<a class="see-footnote" id="footnoteref22_mfcpiqk" title="Greece is an example of an economy saddled by oversized bureaucracy and deeply rooted rigidities that kept the economy in a depressed state during 2009–2015, with little scope for removing structural rigidities and downsizing government." href="#footnote22_mfcpiqk">22</a> Mises (1953) explained that rigidities and government support of monopolies of all kinds hindered recovery from depression. Massive quantitative easing in the US and the Eurozone illustrates clearly the belief of Mises, Simons, and many others on how deeply rigid the system has become. Mises argued that the best approach to unemployment was to remove legal restrictions on wage flexibility and let the labor markets clear on their own. Instead, governments force money expansion as the road to full-employment.</p>
<p>The principle of 100 percent reserve banking, (100 percent money) and the gold standard can be stated as follows. Banks are essential intermediaries in payments and investment; however, they should have no prerogative for money creation. Gold and silver are purely economic commodities and not an interest-based debt. Gold producers sell gold in the same manner as a farmer sells wheat. Gold is exchanged against wheat. As money, gold does not contract in the same fashion as a debt money, which contracts when borrowers pay it back or when issuers refuse to issue or when it goes into a general default. Gold does not expand at the stroke of a pen as debt-money does. Gold does not confer to any country a privilege status of a reserve currency. Under the gold standard, countries may not use their own currencies as a means of settlement and may have to settle balance of payments in gold if no other commodities are available for exports. Gold exerted the development of exports; nations exchanged commodities, and rarely settled in gold. With paper money, many countries neglected exports since they import with paper. Other countries, mainly developing countries, relied on borrowing, and in turn neglected their export sectors.</p>
<h4>Suggested Reforms for Reintroducing 100 Percent Reserve Banking and a Domestic Gold Standard</h4>
<p>Restoring a gold standard following a suspension of gold convertibility is technically simple; it is purely a political decision. It requires relating changes in money (paper and demand deposits) to the flows of gold and foreign exchanges until the national currency reaches a stable rate vis-à-vis gold, at which point convertibility may be implemented on a permanent basis.<a class="see-footnote" id="footnoteref23_w8wdnag" title="The International Monetary Fund (IMF) adjustment programs imposed a strict ceiling or even reduction on the money supply in order to allow a country to reconstitute net foreign assets to a desired target. The IMF used the monetary approach to the balance of payments, which considered that the balance of payments reflected changes in domestic monetary aggregates." href="#footnote23_w8wdnag">23</a> For instance, the German rentenmark was instantly pegged to gold in 1923, with no convertibility provision and almost no gold reserves, simply based on a full commitment to control the German money supply. Restoring a gold standard is exactly the same experience as restoring convertibility of a currency. After World War II, many European currencies, such as the French franc, were not convertible into foreign currencies at par as stipulated by the Bretton Woods system of fixed exchange rates. To reestablish convertibility, countries had to regain control of both money and fiscal policies and achieve macroeconomic stability. As long as the fiscal deficit was out of control and was being constantly monetized, countries could not attain convertibility.</p>
<p>Historical experiences of restoring the gold convertibility and gold standard are numerous. The basic principle was the same: strictly controlling banknotes and deposits emission. This principle was observed by the Bank of England in 1819 to pave the way for convertibility of its banknotes in 1821 following the suspension in 1797. In like manner, the US Treasury established gold convertibility of the greenbacks in 1879 through running fiscal surpluses that reduced paper money. As major industrial powers such as the United States, Germany, and France adopted gold standards during 1870–1900, the value of silver in relation to gold depreciated considerably. Numerous partner countries that were on a silver standard saw their currencies depreciate significantly, causing serious fiscal and external difficulties. Many silver standard countries had to introduce currency reforms consisting of achieving a fixed exchange rate of their currencies in relation to gold. These reforms were needed to establish stability of exchange rates and settle trade and capital operations in gold with gold standard countries (Kemmerer, 1916).</p>
<p>With the outbreak of war in 1914, many countries suspended the gold standard, meaning that their currencies were no longer convertible into gold; the currencies were floating in the exchange markets against each other. As soon as the war ended, countries were eager to restore the gold standard. An important feature of the return to a gold standard was the contrast between the doomed British experience and the successful French experience. The British experience restored gold at prewar parity in 1925 in the context of very high inflation. This rate did not reflect the very high degree of inflation since 1914 and was totally unrealistic. It necessitated a grave deflation that severely impaired the economy as well as external competitiveness. Mass unemployment developed, as wages could not be reduced. However, France was not as fast as the United Kingdom in restoring gold; it stabilized its economy until it reached a stable market rate of its currency in relation to gold that reflected past inflation as well as trade equilibrium. France restored a stable gold standard in 1928 at a highly devalued market rate, about one-fifth of the prewar parity, which enhanced external competitiveness without any reduction in nominal wages and was maintained with no difficulty thereafter.</p>
<p>Mises emphasized that a return to sound money, i.e., a gold standard, is technically simple; however, politically very difficult. His gold plan required an end to inflation by setting an insurmountable barrier to any further increase in paper and demand deposits; it required a safeguard against deflation. He proposed the establishment of a conversion agency, different from the central bank, which would be entrusted with exchange operations. The agency would have the monopoly to issue paper money against 100 percent gold and foreign exchange coverage. The banking system would be 100 percent reserve banking, with no discounting by the central bank. No privileges would be accorded to the agency, other than paper money issuance. It would not get a monopoly for dealing in gold or foreign exchange. The foreign exchange market would be perfectly free from any restrictions. Everybody would be free to buy or sell gold or foreign exchange. There would be no centralization of such transactions; any bank or dealer could settle foreign payments with foreign correspondents. Nobody would be forced to sell gold or foreign exchange to the agency or to buy gold or foreign exchange from it. Mises emphasized that the United States should restore the classical gold standard, which existed in the United States until 1933 with gold coins circulating freely, and not the gold-exchange standard. Gold should be in everybody’s cash holdings. Everybody should see gold coins changing hands, and everyone should be used to having gold coins in their pockets, receiving gold coins when they cash their paychecks, and spending gold coins when buying something from a store.</p>
<p>Rothbard (1962) proposed a gold standard with the dollar tied to gold permanently at a fixed weight, and redeemable in gold coin at that weight. The dollar should once again be defined as a unit of weight of gold. Rothbard urged the replacement of the name “dollar” by gold ounce or gold gram. Rothbard insisted that gold coins should circulate and be used in transactions. He emphasized that there seemed little point in advocating fundamental reforms while neglecting the causes that undermined the gold standard in the past. Besides abolishing the Federal Reserve, Rothbard wanted to eliminate, or at least dramatically reduce, inflation and business cycles. Consequently, he proposed 100 percent reserve banking, along the Chicago Plan (1933), Irving Fisher’s <em>100 Percent Money</em> (1936), and Simons (1947) that would take away the ability of banks to create money and thus reduce leverage and inflationary and deflationary pressures. David Hume, Thomas Jefferson, Andrew Jackson, John Adams, W. Gouge, Charles H. Carroll, Amasa Walker, Isaiah W. Sylvester, Elgin Groseclose, and Ludwig von Mises all adhered to the 100 percent gold reserve tradition, i.e., paper and deposits are 100 percent covered by gold reserves. They considered the issuing of demand liabilities greater than reserves as a fraud.</p>
<p>Ron Paul (1985) asserted that Menger (1892) and Mises (1953) showed that money emerged by evolution from the market process. Namely, governments did not invent gold bullion as money. He proposed a new troy ounce gold coinage. Paul supported Mises’s Conversion Agency that would be responsible for issuing gold coins and bullion to the public and for exchanging gold and paper. Only the conversion agency should be allowed by law to legally exchange genuine coin for paper dollars at the par value. In Paul’s plan, a main step to restoring the gold monetary system is gold coinage; gold must be in the cash holdings of everyone. As with Mises, everybody must see gold coins changing hands; everybody must be used to having gold coins in their pockets, to receiving gold coins when they cash their paychecks, and spending gold coins when they go to buy goods in a store. In the critical importance of the gold coinage lies the key to establishing a new gold standard. In Paul’s gold standard plan, the coinage should be based on exact units of bullion weight. The coins should be denominated in troy ounces, half-ounces, and smaller sizes if feasible. The denomination of the coinage is the secret to success in the later stages of the political agenda.</p>
<p>Mises, Rothbard and Paul considered that a single country could go it alone and adopt the gold standard without waiting for the rest of the world to be under the gold standard.<a class="see-footnote" id="footnoteref24_wyopyjp" title="Soddy (1934) insisted that monetary reform is purely a national matter and should not require an international conference. The United Kingdom was the only gold standard country during 1816–1873. It introduced its gold legislation in 1816, without approval from another country; it rejected bimetallism proposed by the international monetary conferences of late 19th century in favor of its own gold standard." href="#footnote24_wyopyjp">24</a> They rejected the idea of an international conference for restoring a gold standard, since in the past each country had gold money established by a sovereignty act and not by coordinating with partner countries. Mises (1944) wrote:</p>
<p class="indent2">No international agreements or international planning is needed if a government wants to return to the gold standard. Every nation, whether rich or poor, powerful or feeble, can at any hour once again adopt the gold standard. The only condition required is the abandonment of an easy money policy and of the endeavors to combat imports by devaluation (p. 252).</p>
<p>In the same vein, Walker (1873) wrote:</p>
<p class="indent2">If the principles we have previously laid down, and the practical results which follow, are such as we have stated, then no one nation needs to hesitate in making this experiment for fear that other nations may not follow their example; for the community which has the soundest currency will, other things being equal, have the most profitable industry and the most advantageous commerce. There need be no legal restriction whatever upon the issue of such a currency, and it matters not how voluminous it may be since it will be composed in fact of value money, will obey the laws of value, and, of course, will regulate itself. There would then be no expansions or contractions, except from the legitimate operations of trade; and the currency of the nation would be perfectly sound (p. 245).</p>
<h4>One Hundred Percent Reserve Banking and a 100 Percent Convertible Gold Standard</h4>
<p>An essential reform, even before thinking about restoring the gold standard, is establishing 100 percent (or close to 100 percent) reserve banking or 100 percent money. The introduction of this reform has been thoroughly described by Soddy (1934), and Fisher (1936). Legislation has to change the banking into two components: (i) a 100 percent depository system, which issues no loans; and (ii) investment banking, which borrows or issues securities and bonds, and invests, lends or buys bonds and securities (Walker, 1873). This component cannot create money, i.e., issuing a loan, which has no money available, by simply crediting a borrower account and creating deposits. An investment bank operates like a development bank<a class="see-footnote" id="footnoteref25_3cxq7lo" title="For instance, the World Bank cannot lend without raising the funds prior to its lending by selling bonds. These funds are held at depository institutions. Certainly, it cannot create deposits in favor of its borrowers." href="#footnote25_3cxq7lo">25</a> or a mutual fund whose funds are held by a depository institution. Hence, starting from an implementation date, legislation has to require that a new loan issued by an investment bank would have to be fully covered by funds held in a separate depository institution. This decision will arrest the creation of new debt money; it will stabilize the money supply; and will enable the banking system to transit to a two-tier banking.<a class="see-footnote" id="footnoteref26_gqpswr0" title="To prevent a resurgence of fractional reserve banking, depository institutions issue no loans; they are payments institutions. Investment banks have no money creation role. The depository banks settle all their payments." href="#footnote26_gqpswr0">26</a> Money holders would have to decide how much non-interest earning deposits they wish to keep, and how much interest-earning assets they acquire through the investment banking system. Simons stated that the best investment banking is the one that has no fixed money contracts at all:</p>
<p class="indent2">What arrangements as to the financial structure would be conducive to lesser or minimum amplitude of industrial fluctuations? An approximate ideal condition is fairly obvious — and an unattainable. The danger of pervasive, synchronous, cumulative maladjustments would be minimized if there no fixed money contracts at all — if all property were held in residual equity or common stock form. With such a financial structure, no one would be in a position either to create effective money substitutes (whether for circulation or for hoarding) or to force enterprises into wholesale efforts of liquidation. (Simons, 1947, p. 165)</p>
<p>This reform enables the implementation of the McKinnon-Shaw financial deepening scheme. McKinnon and Shaw emphasized the importance of money deepening and a well-developed banking and financial sector. Large saving is pooled from small savers, large scale and efficient projects may be implemented, and risk is highly reduced. Investment banks borrow, or issue bonds, and stocks, and buy securities or extend loans to investment projects. Simons preferred that investment banks issue more equities than interest-bearing loans in mobilizing savings. Accordingly, the investment bank reduces its risk by linking the cost of its resources to the performance of its assets and to be able to raise long-term capital. Moreover, equity financing reduces the conflict between debtors and creditors and changes in value of debt due to changes in the price level.</p>
<p>The introduction of gold standard becomes an appendix to 100 percent reserve banking and 100 percent money, since a main obstacle to its existence has been removed, which is debt money. A gold standard with debt money would fail, since gold and debt money were like water and fire (Carroll, 1850s). A non-reserve currency country has nothing to lose by adopting a gold standard. It is presently in a pseudo-gold standard, since its foreign exchange can be converted instantly into gold at prevailing gold market prices. The gold standard cannot operate in any country with restrictions on the trade of gold. Gold restrictions were most futile and were imposed as a measure to force devalued paper on people as shown in France in 1720 and 1789–1795, the US after 1933, and the United Kingdom after 1931. A country has to establish a fully free gold market with no taxes on imports or exports of gold. The state assumes a role of quality control to prevent fraud. A free gold market establishes an equilibrium price free of distortions and contributes to a return to gold at true prices.</p>
<p>Peel’s Act in 1844 split the Bank of England into two departments: the Issue Department and the Banking Department. The issue department was in charge of issuing banknotes with 100 percent gold coverage. In like fashion, the central bank of a country envisaging 100 percent money with a gold standard will be re-organized into an issue department; the banking department becomes purely redundant in 100 percent money and may be eliminated. The issue department will issue national paper money only against foreign exchange and gold at floating market rates. The issue department has the strict monopoly of paper money. However, it has no monopoly in foreign exchange and gold markets. Banks, foreign exchange bureaus, and gold and silver dealers are entirely free in their trade of gold and foreign exchange within the regulatory framework. The issue department has no banking operations within or outside the country. It immediately turns its foreign exchange into gold at market rates and sells gold against national money at market rates.</p>
<p>A gold standard act would re-establish the mints and the gold and silver coins. The mints would be open to all the public, including domestic and foreign gold dealers, as well as to the issue department of the central bank. The mints would turn gold into coins and certify the quality of the coin at a simple fee for covering the cost of assaying and coining the gold metal. Nationals should be allowed to acquire gold coins minted locally or abroad. If residents export commodities, say, wheat, oil, and others, they may elect to import gold and transform the gold into coins. These coins should be allowed to circulate in the economy especially in settling large transactions. The purchase of gold coins should be facilitated through licensed banks and foreign exchange dealers. Monetary gold would be acquired through external trade, local mining if available, and diversion from non-money uses. The import of gold would be paid for by foreign exchange earned from exports of merchandise and services. Gold trade would be carried out at international prices in the same way as for all tradable commodities such as corn, crude oil, sugar, coffee, and others. The economy would have to export commodities in order to import gold or any other commodity. Gold would be bought and sold against national paper at the issue department or any appointed dealer at the market rate. Gold coins and bars may be deposited for safekeeping at depository institutions and used in payment operations. Depository institutions have to keep deposited gold in coins or bars and reconstitute them in coins or bars and never in paper money. Customers would convert their gold into national paper in separate operations at authorized banks and foreign exchange bureaus or directly at the issue department. During the transition period, gold would circulate alongside paper at floating rates in the same way as foreign currencies circulate alongside the paper. Traders may directly use their foreign currencies or convert them into paper to settle payments. Silver coins, to be issued by the mints, would circulate at a free rate as a commodity.</p>
<p>The issue department should monitor the exchange rate of the paper money in relation to gold only and not to foreign currencies; there should be no effort to economize on gold circulation or limit it only to bullion. The length of the transition is of little relevance, provided the issue department operates strictly as a conversion agency and the 100 percent money is in force. When paper is about to appreciate considerably in relation to gold, following a period of floating in relation to gold, a country would have reached the end of the transition period and would be ready to operate under a classical gold standard. The government may then fix the value of the paper in terms of gold. From this point of time onward, the issue department will buy and sell gold against paper at par. The paper has a denomination in units of accounts, and the gold coins and bars will continue to be denominated in weights. At par, paper will be as good as gold.</p>
<p>A country would have 100 percent coverage of any newly issued currency; that is, each new paper will have a full gold back up. Inversely, gold sold by the issue department entails a withdrawal from circulation of an equal amount of paper. The risk of a speculation against paper, once it is pegged to gold, is nil, since with 100 percent money, no money can be emitted as a debt. The paper has been strictly controlled and tightly linked to the transaction needs; there is no more redundancy of paper. However, there may be crop failure that necessitates considerable gold for imports, which may strain the gold holdings of the issue department or the foreign exchange dealers. In such contingency, the issue department may consider temporarily floating the currency until it reestablishes the previous parity again. We may observe that there should be a subsidiary metallic coin system in silver, copper, bronze, and nickel to supplement gold in the settlement of small transactions, as was the case with the UK system during 1816–1914. The subsidiary coinage is denominated not in weight but in decimals of units of account. To prevent inflation through subsidiary coinage, a number of paper money has to be drawn for each equivalent amount of decimal coins.</p>
<p>We should underscore that no initial condition is needed for the stock of the paper currency or the stock of gold. A country would not have to amass gold before it moves to a gold standard nor does it have to withdraw its paper currency from circulation through taxation and budget surpluses.<a class="see-footnote" id="footnoteref27_69jq77t" title="A country can instantly peg its currency to gold at prevailing market rate, as the case of the German Rentenmark in 1923 with no convertibility provision. It reduces its currency when gold appreciates and expands when gold depreciates in relation to the fixed rate." href="#footnote27_69jq77t">27</a> The prior conditions would be to lift any restriction on gold as money and establish a totally free gold and silver market; establish a monopoly issue agency; and apply 100 percent reserve banking. The stock of gold acquired would be determined by the demand for gold; the higher the demand for gold, the more the country has to increase its exports and reduce its non-gold imports. The market would also determine the composition of its money in stocks of paper currency and gold and the convenience offered by each form of asset.</p>
<p>The Chicago Plan (1933) stressed 100 percent reserve money and equity-based banking without specific reference to gold. Why insist on re-introducing gold in a country when 100 percent reserve money would secure financial stability with paper money? We observe that all previous 100 percent money plans during the 18th and 19th centuries assumed a gold standard and aimed at securing gold convertibility. The authors of the Chicago Plan might have stressed a return to gold had they experienced a pure paper system such as prevailed after 1971. A removal of debt money is essential for stability under a paper or a gold system. Debt and money have to be split; money should not vary in relation to debt. Inconvertible paper is not natural money and did not emanate from market forces. As a result, the state has found paper money convenient to finance deficits. Paper representing gold may be coined as fully backed money; inconvertible paper is not, since it is often created through debt or fiscal deficit monetization. Moreover, gold is both a standard of value and an equivalent (i.e., exchanged commodity). Inconvertible paper has no intrinsic value and is not a standard of value. Hence, a country may not benefit by holding its foreign reserves in inconvertible paper. It will be safe to hold them in gold. A national paper pegged to gold has a known metal content and is stable money. It is no longer influenced by inconvertible and rapidly depreciating foreign currencies. A country will shelter its economy against the instability and uncertainties caused by reserve currencies countries. If not pegged to gold, the national paper will have an unstable exchange rate, and may suffer a degree of depreciation as reserve countries keep inflating their respective currencies. This will discourage investment and increases exchange rate risk and uncertainty.</p>
<h4>Structural Reforms to Support 100 Percent Money: Fully Liberalized Labor, Capital, and Commodities Markets</h4>
<p>In almost every country, governments intervene in a multitude of sectors and areas of the economy. The more the government expands and intervenes, the more it needs resources, which it does by increasingly resorting to an inflation tax. Adam Smith, who demonstrated the fallacies of tariffs and bounties and warned against the expansion of the unproductive government sector, has detailed the dangers of government expansion and intervention. He confined the role of government to defense, justice, education, and public works. Among opponents to government intervention was Lysander Spooner (1886) who called for abolishing tariffs and monopolies and restoring free markets in capital, labor, and commodities. He stated:</p>
<p class="indent2">[I]f a government is to “do equal and exact justice to all men,” <em>it must do simply that, and nothing more</em>. If it does more than that to any, that is, if it gives monopolies, privileges, exemptions, bounties, or favors to any, it can do so only by doing injustice to more or less to others. <em>It can give to one only what it takes from others; for it has nothing of its own to give to anyone</em>.(Spooner, 1886, p. 15)</p>
<p>Historically, therefore, the government had to force paper currency, make it a legal tender, to be able to levy inflation taxes and promote interest groups.</p>
<p>Paper money and fractional reserve banking have led to large government bureaucracies and powerful interest groups; the economy has reduced mechanisms for adjustment, except through inflation. Numerous writers have criticized the model of excessive intervention of the state in the economy. Mises (1949, 1953) stressed the necessity of unhampered markets and elimination of inflation as conditions for re-introducing a gold standard. He noted that government needed inflation to finance its expanding size. Simons (1947) deplored the devastating consequences of statism, and stressed that a monetary reform along the lines of 100 percent money has to be accompanied with abolishing monopolies and price rigidities. Hayek (1944) called it “the road to serfdom.” Anderson (1945), and a number of other writers showed the dangers of the present system of statism. The government keeps expanding in size.<a class="see-footnote" id="footnoteref28_k727tgl" title="In his book, Our Enemy, the State, Albert Jay Nock (1935) showed the adverse consequences of an ever-bigger government in terms of economic decline, despotism, and social decline. F.A. Hayek (1944) deplored statism in many Western countries, which reduced people to serfdom." href="#footnote28_k727tgl">28</a> Failure of the state is called failure of the market. In spite of financial crises, economic decline and social inequities, this system is fully supported by politicians. Reserve currencies were able to finance their excessive statism by printing money. After 2008, reserve currency countries set interest rates at near zero with a view to running fiscal deficits and transferring part of the bailout cost to other countries. A non-reserve country has a strict external constraint. Admittedly, no Western country has the adoption of a gold standard on its radar, especially given wage and price rigidities, the dominance of statism, high spending, monetization of deficits, huge public and private debt, as well as the dominance of powerful financial groups. In many countries, the statist economic model has damaged exports, turned a previously rich agricultural economy into a food deficit country, and caused high external debt. With statism and rigid labor and control laws, a country will not be able to adopt a gold standard, or even, a restrictive money policy to tame inflation. It has to rely on inflation taxation to run large budget deficits.</p>
<p>A gold standard embedded in 100 percent reserve banking has been proposed by many writers since the 17th century because of the extensive damage caused by paper and fractional reserve banking. Although such a system has not existed in a recent past and there is no historical experience to prove its superiority, there are instead a great number of counterfactual cases regarding the disruptive consequences of inconvertible paper and debt money, by which leading industrial countries as well as developing countries are suffering economic stagnation, high unemployment, high inflation, high indebtedness, and continued financial instability. Very high income and wealth inequality prevails through redistribution caused by money printing, leverage and financial crises. The income distribution is no longer determined by the real contribution to the national output but by non-market advantages. In contrast, there is a substantive evidence that economic growth was rapid under the gold standard and benefited labor considerably in the form of substantial real wage increases with full-employment fully maintained in all gold standard countries (Farrer, 1898). Exchange rates were fixed for decades, and international trade was flourishing. However, the gold standard could not survive alongside fractional reserve banking. A system of 100 percent money, which abolishes debt money, does not allow money creation out of thin air.</p>
<p>Opponents of the gold standard have claimed that gold scarcity would prevent circulation of increasing volume of commodities, ignoring the role of clearing that clears almost all transactions in asset, commodities, international trade, etc., with almost no cash. Unlike the US Fed, which printed $4 trillion in money within 5 years to finance government expenditures, there is no mining company that could dig out as much gold within the same period. Banks, in emitting money, were guided by profit maximization and much less by commodity circulation. The redundancy of debt money evolved into a rampant inflation showing that too much paper was crippling the economy.<a class="see-footnote" id="footnoteref29_ip3bsor" title="Paradoxically, inconvertible paper creates money shortages. Cagan (1956) showed that real money was almost non-existent in hyperinflation countries." href="#footnote29_ip3bsor">29</a> The US dollar has a purchasing power in 2016 that is less than 2 cents of what it had in 1914. Gold was used essentially as a standard; it rarely circulated as a means of payments as illustrated by the establishment of goldsmith houses, and the Bank of Venice, Bank of Amsterdam, Bank of Hamburg, and other similar banks that settled accounts without physical gold movements. By late 19th century, actual gold payments represented less than 2 percent of total payments in the United Kingdom. Be it for gold or paper, only the economy determines the actual real money in the economy via changes in prices. Moreover, there is a huge stock of gold buried deep in storage that could be released and used as money. Opponents also claim that gold impaired external competitiveness. In case of many countries, paper money inflation ruined the export sector as some countries relied on foreign debt to finance their external deficit, instead of exports. Moreover, domestic inflation impaired competitiveness. Improving external competitiveness via inflation and exchange rate depreciation amounts simply to a subsidy to exporters at the expense of importers and the fixed income groups; it is not a true improvement in competitiveness, which emanates from productivity gains and innovation. There is plenty of evidence that the gold standard improved competitiveness via substantial gains in productivity and a consequent drop in prices as witnessed during 1871–1914.</p>
<h4>Conclusions</h4>
<p>We have recommended 100 percent (or realistically closer to 100 percent) reserve banking as the most important reform in restoring sound money and financial stability. This would also provide the foundation and a stepping stone to re-introducing a domestic gold standard in one or more countries that wished to do so. Sound monetary reform would help a country restore economic growth and social equity. As Gouge (1833) stated, fractional reserve banking is a malum per se, and has no remedy, except to be abolished and replaced by 100 percent reserve banking, in other words 100 percent money, as strongly advocated by the Chicago Plan (1933), Soddy (1934), and Irving Fisher (1936). </p>
<p>In the context of a cheap money policy by reserve currencies countries and consequent uncertainty, a non-reserve country might consider a gold standard to immunize its economy against fluctuations in exchange rates and prices. China has expressed such an interest at different times over the last 10 or so years. Besides 100 percent money, a country ought to encourage risk-sharing equity investment banking as suggested by Simons, thus alleviating the conflict between debtors and creditors and securing financial stability.</p>
<p>The inconvertible paper system has become highly unstable, as shown by the 2008 crisis, its aftermath as well as the turbulences that caused it. Controlling interest rates at near-zero bound will reduce savings, foster debt-financed consumption and misallocate resources away from their best physical investment opportunities in the real sector; increasing the level of debt, redistributing wealth with growing inequalities, fueling volatile exchange rates and asset prices, and all damaging growth, social equity, and international trade. By re-establishing 100 percent money, a country will have a most propitious money that will extricate an economy from inflation, restore fast growth, full employment, and enhance social justice, with its money and interest rates being market determined and not administered by the state.</p>
<ul class="footnotes"><li class="footnote" id="footnote1_c1805at"><a class="footnote-label" href="#footnoteref1_c1805at">1.</a> The authors of the Chicago Plan were: Henry Simons, Frank Knight, Aaron Director, Garfield Cox, Lloyd Mints, Henry Schultz, Paul Douglas, and A. G. Hart. Professor Irving Fisher of Yale University was a strong supporter of the Plan. His book, <em>100 Percent Money</em> (1936), was an attempt to win support for the plan among academics and policy makers.</li>
<li class="footnote" id="footnote2_2lkibs4"><a class="footnote-label" href="#footnoteref2_2lkibs4">2.</a> The Bank of England, founded in 1694, suspended convertibility of its notes into gold and silver as early as 1696, and not infrequently thereafter. It suspended convertibility during 1797–1821.</li>
<li class="footnote" id="footnote3_45c51q3"><a class="footnote-label" href="#footnoteref3_45c51q3">3.</a> With this separation, there is no need for insuring the safety of bank deposits through corporations such the Federal Deposit Insurance Corporation (FDIC).</li>
<li class="footnote" id="footnote4_o5waem5"><a class="footnote-label" href="#footnoteref4_o5waem5">4.</a> Eminent writers stressed that debt money would certainly evict gold: David Hume (1752), Charles Jenkinson (1805), US Presidents Thomas Jefferson and Andrew Jackson, William Gouge (1833), Charles Holt Carroll (1850s), and Amasa Walker (1873).</li>
<li class="footnote" id="footnote5_hjzjaxj"><a class="footnote-label" href="#footnoteref5_hjzjaxj">5.</a> Examples of horrifying hyperinflations that ruined the real economy were John Law’s system in France (1716–1720), the French assignats (1789–1795), the US continental currency (1785–1790), and the German hyperinflation (1919–1923). In all these episodes, paper became worthless, the economy lost its money, and famine spread in the country.</li>
<li class="footnote" id="footnote6_6y4w0d5"><a class="footnote-label" href="#footnoteref6_6y4w0d5">6.</a> Irving Fisher (1936) noted that US money was reduced by 35 percent during 1929–1933 following the collapse of debt money. He strongly advocated 100 percent reserve money so to eliminate the banks’ power in creating and destroying money.</li>
<li class="footnote" id="footnote7_axy5r2y"><a class="footnote-label" href="#footnoteref7_axy5r2y">7.</a> We may cite David Hume (1752), Thomas Jefferson, Andrew Jackson, William Gouge (1833), Charles. H. Carroll (1850s), Amasa Walker (1873), Irving Fisher (1936), the numerous authors of the Chicago Plan (1933), Ludwig von Mises (1953), Murray Rothbard (1994), and Maurice Allais (1999).</li>
<li class="footnote" id="footnote8_ihqxccx"><a class="footnote-label" href="#footnoteref8_ihqxccx">8.</a> Two definitions of inflation are proposed. The most common one is a persistent general rise of prices. Another definition considers the general rise of prices as an effect of a rise of money supply that is not offset by a corresponding increase in the demand for broad money so that a fall in the objective exchange-value of money must occur. In this definition, inflation is measured by the increase in broad money supply.</li>
<li class="footnote" id="footnote9_hpro1gy"><a class="footnote-label" href="#footnoteref9_hpro1gy">9.</a> Inflation is an inherent feature of paper and debt money. It emanates from money created out-of-thin air in form of a monetization of fiscal deficits or issues of unbacked loans. Commodities are purchased against paper and not commodities. The practice of appropriating wealth unjustly was severely condemned by John Locke (1691).</li>
<li class="footnote" id="footnote10_158ur2h"><a class="footnote-label" href="#footnoteref10_158ur2h">10.</a> Bastiat, <em>The Seen and the Unseen</em>, 1877.</li>
<li class="footnote" id="footnote11_r6crs2l"><a class="footnote-label" href="#footnoteref11_r6crs2l">11.</a> In an inflationary context, producers reconstitute their money working capital through increasing prices and reducing quantities. In a non-inflationary context, they have to generate money working capital through higher quantities sold. They are compelled to produce much more to generate cash. The drop in prices improves in turn external competitiveness and exports.</li>
<li class="footnote" id="footnote12_brakzr8"><a class="footnote-label" href="#footnoteref12_brakzr8">12.</a> Mises (1953) noted that CPI underestimated inflation during 1922–1929, a period characterized by high productivity gains. Let the recorded CPI be 3 percent, let productivity gains be 7 percent; the true CPI would be 10 percent.</li>
<li class="footnote" id="footnote13_3uu0acn"><a class="footnote-label" href="#footnoteref13_3uu0acn">13.</a> Interest-based bank money has been severely condemned by Thomas Jefferson, William Gouge, Charles Holt Carroll, Frederick Soddy, Amasa Walker, and many others. Mises, Rothbard, Irving Fisher, authors of Chicago Plan, Maurice Allais, and many authors proposed abolishing debt money and its replacement by a non-interest money.</li>
<li class="footnote" id="footnote14_2jbqe0c"><a class="footnote-label" href="#footnoteref14_2jbqe0c">14.</a> These institutions were created as depository and payments institutions and not to economize on gold and silver, which were abundant in supply to the point of causing high inflation worldwide.</li>
<li class="footnote" id="footnote15_w2jexlw"><a class="footnote-label" href="#footnoteref15_w2jexlw">15.</a> Friedman (1959) opposed the discretion power of the Fed; he proposed a fixed rule according to which money supply ought to increase at about 2 percent-3 percent. He reiterated that the Fed could only control the money supply; it cannot control the unemployment rate, the interest rate, or the rate of inflation.</li>
<li class="footnote" id="footnote16_fc9hu0r"><a class="footnote-label" href="#footnoteref16_fc9hu0r">16.</a> Excess reserves of banks at the Fed were $2.5 trillion in December 2015. If this amount is drawn down, credit expansion will be too gigantic and will increase credit risk as well as inflation.</li>
<li class="footnote" id="footnote17_kroccab"><a class="footnote-label" href="#footnoteref17_kroccab">17.</a> In 1694, the Bank of England made a loan to the government; it immediately monetized the loan and issued banknotes in equal amount, extending more loans to both the government and business. Through leverage, the bank earned interest income on capital, which it did not possess.</li>
<li class="footnote" id="footnote18_ddo5mql"><a class="footnote-label" href="#footnoteref18_ddo5mql">18.</a> Ron Paul (2009) considered “the creation of the Fed the most tragic blunder ever committed by Congress. The day it was passed, old America died and a new era began. A new institution was born that was to cause the unprecedented economic instability in the decades to come. The longer we delay a conversion to sound money and away from central banking, the worse our crises will grow and the more the government will expand at the expense of our liberties. Our wealth is drained, our productivity is sharply diminished. Our freedoms are eroded. We have been through nearly a hundred years of this same repeating pattern, so it is time to wise up and learn something. When the printing presses are available to the government and the banking cartel, they will use them rather than do the right thing.”</li>
<li class="footnote" id="footnote19_qpndhyh"><a class="footnote-label" href="#footnoteref19_qpndhyh">19.</a> Figure 1 showed that an item that cost £1 in 1945 would cost £38 in 2013.</li>
<li class="footnote" id="footnote20_5a50d4h"><a class="footnote-label" href="#footnoteref20_5a50d4h">20.</a> Irving Fisher (1936) explained the Great Depression (1929-1936) by the evaporation of bank money. His reform plan (100 percent money) urged the abolition of fractional reserve banking.</li>
<li class="footnote" id="footnote21_y4z9kea"><a class="footnote-label" href="#footnoteref21_y4z9kea">21.</a> During the 19th century, labor markets recovered very quickly from depression caused by banking failure through a free market mechanism. In the depth of the Great Depression, with unemployment close to 25 percent, the US hiked up wage rates tremendously in the effort to stimulate spending. Not surprisingly, unemployment remained above 19 percent until the breakout of the war (1939–1944). With the war, unemployment fell to less than 1 percent.</li>
<li class="footnote" id="footnote22_mfcpiqk"><a class="footnote-label" href="#footnoteref22_mfcpiqk">22.</a> Greece is an example of an economy saddled by oversized bureaucracy and deeply rooted rigidities that kept the economy in a depressed state during 2009–2015, with little scope for removing structural rigidities and downsizing government.</li>
<li class="footnote" id="footnote23_w8wdnag"><a class="footnote-label" href="#footnoteref23_w8wdnag">23.</a> The International Monetary Fund (IMF) adjustment programs imposed a strict ceiling or even reduction on the money supply in order to allow a country to reconstitute net foreign assets to a desired target. The IMF used the monetary approach to the balance of payments, which considered that the balance of payments reflected changes in domestic monetary aggregates.</li>
<li class="footnote" id="footnote24_wyopyjp"><a class="footnote-label" href="#footnoteref24_wyopyjp">24.</a> Soddy (1934) insisted that monetary reform is purely a national matter and should not require an international conference. The United Kingdom was the only gold standard country during 1816–1873. It introduced its gold legislation in 1816, without approval from another country; it rejected bimetallism proposed by the international monetary conferences of late 19th century in favor of its own gold standard.</li>
<li class="footnote" id="footnote25_3cxq7lo"><a class="footnote-label" href="#footnoteref25_3cxq7lo">25.</a> For instance, the World Bank cannot lend without raising the funds prior to its lending by selling bonds. These funds are held at depository institutions. Certainly, it cannot create deposits in favor of its borrowers.</li>
<li class="footnote" id="footnote26_gqpswr0"><a class="footnote-label" href="#footnoteref26_gqpswr0">26.</a> To prevent a resurgence of fractional reserve banking, depository institutions issue no loans; they are payments institutions. Investment banks have no money creation role. The depository banks settle all their payments.</li>
<li class="footnote" id="footnote27_69jq77t"><a class="footnote-label" href="#footnoteref27_69jq77t">27.</a> A country can instantly peg its currency to gold at prevailing market rate, as the case of the German Rentenmark in 1923 with no convertibility provision. It reduces its currency when gold appreciates and expands when gold depreciates in relation to the fixed rate.</li>
<li class="footnote" id="footnote28_k727tgl"><a class="footnote-label" href="#footnoteref28_k727tgl">28.</a> In his book, <em>Our Enemy, the State</em>, Albert Jay Nock (1935) showed the adverse consequences of an ever-bigger government in terms of economic decline, despotism, and social decline. F.A. Hayek (1944) deplored statism in many Western countries, which reduced people to serfdom.</li>
<li class="footnote" id="footnote29_ip3bsor"><a class="footnote-label" href="#footnoteref29_ip3bsor">29.</a> Paradoxically, inconvertible paper creates money shortages. Cagan (1956) showed that real money was almost non-existent in hyperinflation countries.</li>
</ul>Hossein Askari, Noureddine Krichene100 Percent Reserve Banking and the Path to a Single-Country Gold Standard<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/QJAE_20141027_0_0.jpg?itok=Ger2glZG" width="240" alt="QJAE_20141027_0_0.jpg" />38400December 18, 2018 - 2:00 PMInterventionismLand Use Regulation: A Supply and Demand Analysis of Changing Property Rightshttps://mises.org/node/18539
<h3>Volume 5, Number 4 (1981)</h3>
<p>Two trends stand out in an examination of the historical development of land use regulation in the United States. First, continually increasing controls have been placed on the rights of private landowners to use their land as they please. Second, in recent years state and federal involvement in land use regulation has become increasingly important. The dual purposes of this paper are to offer an explanation for, and to examine the consequences of, these trends.</p>
<p>It is argued below that land use regulations are the result of public sector responses to demands of politically powerful special interest groups, rather than attempts to correct for market failures.<a class="see-footnote" id="footnoteref1_84a7627" title="Stigler and several others advanced this economic theory of regulation primarily as an explanation of industrial regulation. See George Stigler, "The Theory of Economic Regulation," Bell Journal of Economics and Management Science 2 (Spring 1971): 3–27; Bruce Benson, "Observations on Supply of Regulation in the Context of Stigler's Theory of Economic Regulation," Pennsylvania State University, Working Paper, March 1981; Benson, "Regulation — the Demand and Supply of Property Rights," Appalachian Business Review (Special Issue on Regulation) 8 (1981): 22–28; Samuel Peltzman, "Towards a More General Theory of Regulation," Journal of Law and Economics 19 (August 1976): 211–40; and Richard Posner, "Theories of Economic Regulation, Bell Journal of Economics and Management Science 5 (Autumn 1974): 335-58. For a discussion of supporting evidence, see Benson, "Observations on the Supply of Regulation."" href="#footnote1_84a7627">1</a> Furthermore, changes in regulatory policies occur because of changes in interest group strength. This argument is not new. Sanders, for example, recently made similar observations.<a class="see-footnote" id="footnoteref2_rb9hpxl" title="William Sanders, "Property Rights and the Political Economy of Resource Scarcity: Comment," American Journal of Agricultural Economics 61 (February 1979): 116–18. For a sample of discussions of the important role of interest groups in land use regulation, also see: Benjamin Bobo and David Shulman, "Managing California's Coast: The Problem of Housing Distribution," California Management Review 20 (Fall 1977): 74–80; Robert Healy, Land Use and the States (Baltimore: John Hopkins University Press, 1976); and Robert Linowes and Don T. Allensworth, The Politics of Land Use (New York: Praeger Publishers, 1973)." href="#footnote2_rb9hpxl">2</a> However, discussion, more detailed than Sanders', concerning land use regulation in the context of this "economic theory of regulation" (as named by Posner<a class="see-footnote" id="footnoteref3_85g0t9r" title="Posner, "Theories of Economic Regulation."" href="#footnote3_85g0t9r">3</a>) is warranted in order to determine the consequences of this process. Prior to an examination of the demand and supply process, however, a specification of exactly what is being demanded and supplied is required.</p>
<h4>Regulation — The Demand for and Supply of Property Rights</h4>
<p>The objects of interest group demands and the functions of government regulators are: a) the assignment of property rights, and b) enforcement of each property rights assignment.<a class="see-footnote" id="footnoteref4_sqx86oo" title="Stigler, Peltzman, and others contend that the object being demanded and supplied is a transfer of wealth. (See Stigler, "The Theory of Economic Regulation"; and Peltzman, "Towards a More General Theory.") However, a property rights view provides several important insights into the regulatory process and eliminates a number of the criticisms of the economic theory of regulation. For discussion of this point, see the following by the present author: "Observations on the Supply of Regulation," and "Regulation — the Demand and Supply."" href="#footnote4_sqx86oo">4</a> As Stubblebine noted:</p>
<p class="indent2">Every individual seeks those property rights modifications which he believes will improve his welfare. Since property rights condition behavior, he seeks those modifications which will induce others to make choices conveying on him an increased sense of satisfaction.<a class="see-footnote" id="footnoteref5_sebp9cl" title="William Craig Stubblebine, "On Property Rights and Institutions," in Henry Manne, ed., The Economics of Legal Relations (St. Paul: West Publishing, 1972), p. 15." href="#footnote5_sebp9cl">5</a></p>
<p>When rights are modified or reassigned, there are at least two groups involved. One gains at the expense of another. A property right is a resource, and the demand for a scarce resource leads to a conflict of interest. New property rights are created when the rights to own something become desirable. However, in the case of private land in the United States it can be assumed that all rights belong to landowners, whether explicitly or implicitly defined. (This claim is made in light of the beliefs detailed below concerning land use rights during the early history of the country.) Consequently, whenever property rights are reassigned to a group other than landowners, there is a cost to the landowners. Thus, there are at least two, and possibly several, interests in conflict whenever property rights to private land are modified.</p>
<p>The demand for property rights to land use can be divided into two categories — the derived demand for rights to use land as a productive input, and the demand for consumptive rights to land arising from the direct utility a user receives. Consumptive rights include the rights to use land for recreation, and for such aesthetic purposes as preservation of scenic views and open space. (Consumptive benefits may result from productive rights, for example, when recreational services are produced on the land.) Private individuals may own land primarily because they desire rights to productive uses of land, consumptive uses of land, or both. Many public rights to land are rights to consumptive uses. The primary focus in this paper will be on nonlandowner demand for public consumptive rights to land. Such public rights usually prevent private productive land uses, as well as private consumptive uses, and are opposed by landowners.</p>
<p>Property rights generally are considered to be assigned either to private individuals or to the "public". However, designation of property rights as "public" does not mean that all members of society benefit. The "public" may have to bear the cost of maintaining a particular assignment of rights, but only those who use the rights benefit from the assignment.</p>
<p class="indent2">The distinction between "individual'' and "public" is a legal fiction, not readily translated into reality. The benefits ... may extend only to the owner of the property in question, to his immediate neighbors, to the community, the region, or conceivably, the entire world. The legal dichotomy does not readily admit such gradations of "public" versus "private."<a class="see-footnote" id="footnoteref6_45hk7gs" title="Rutherford Platt, The Open Space Decision Process (Chicago: University of Chicago Press, 1972), p. 16." href="#footnote6_45hk7gs">6</a></p>
<p>Thus individuals and groups desire "public" rights to private land if those rights allow use of the land in ways which benefit them.</p>
<h4>The Demand for Land Use Regulation</h4>
<p>Stigler proposed an "economic theory of regulation" in which he contended that interest groups demand regulation from their political representatives.<a class="see-footnote" id="footnoteref7_l45jyaj" title="Stigler, "The Theory of Economic Regulation."" href="#footnote7_l45jyaj">7</a> This political market distributes regulatory favors to those with the highest effective demand. A small group with a large per capita interest tends to dominate over a larger group with more diffuse interests. Small interest groups generally dominate because of the relationship between group size and the cost of obtaining favorable regulation. There are two costs involved. One is the cost of information. Voting is infrequent and usually concerned with a package of issues. Thus, individuals must incur costs to inform themselves about particular issues and politicians. This investment is not worthwhile unless the expected gains are relatively large compared to alternative investments (after all, the desired rights could be purchased through a private market exchange). Consequently, when the potential per capita gain is small, individuals will have relatively weak incentives to obtain the information. In addition, there are costs of organizing. Individuals must first recognize their interest (obtain information) and then organize to express that interest to politicians. The expression of interests includes mobilizing votes and money, as well as informing representatives of the group's desires and political strengths. These organizing costs tend to rise faster than group size.<a class="see-footnote" id="footnoteref8_h022poy" title="See Posner ("Theories of Economic Regulation") for a detailed discussion of the costs of organization." href="#footnote8_h022poy">8</a></p>
<p>In addition to the above observations made by Stigler on the demand for regulation, certain other factors should be noted. First, Peltzman observed that more than one interest group can obtain benefits from a particular regulatory policy. Second, Hirschleifer pointed out that regulators themselves constitute an interest group which benefits from regulation and which may demand regulation. Finally, an interest group may be forced to organize and demand regulation in order to avoid losses due to regulation benefiting another interest group. Thus, the number of groups interested in any particular area of regulation (e.g., land use) can change over time, and, further, the politically dominant interest group can change.<a class="see-footnote" id="footnoteref9_l4d58ej" title="See Peltzman, "Towards a More General Theory"; Jack Hirshleifer, "Comment," Journal of Law and Economics 19 (August 1976): 241-44; and Benson, "Regulation — the Demand and Supply."" href="#footnote9_l4d58ej">9</a></p>
<h4>The Supply of Land Use Regulation</h4>
<p>Stubblebine recognized four mechanisms through which rights modifications are made: "private exchange of rights" and "collective or legislative action" (both of which are permitted), and "private crime" and ' social revolution" (which are proscribed).<a class="see-footnote" id="footnoteref10_7hwzb5a" title="Stubblebine, "On Property Rights and Institutions," p. 10." href="#footnote10_7hwzb5a">10</a> The prime concern of this discussion is "collective or legislative action" for modification of property rights. Governments regulate by creating and enforcing rights, and by modifying existing rights assignments.</p>
<p>The institutional makeup of the political regulatory supply process generally depends upon the size of the regulatory jurisdiction. Regulation is often supplied by elected commissions in small local jurisdictions. In larger areas (i.e., some states or metropolitan counties) elected representatives may delegate regulatory powers to an appointed commission. And, if the regulatory authority is concerned with a very large area, a bureaucratic agency may perform the regulatory function. This is often the case when the federal government is involved (for example, the Forest Service or the Bureau of Land Management). In the cases of appointed commissions or bureaucratic agencies, elected representatives typically assign property rights and then delegate enforcement powers to a regulatory body.<a class="see-footnote" id="footnoteref11_8asj5ms" title="In many cases, of course, regulatory authorities have power both to make property rights assignments and to enforce the assignments. (See Benson, "Observations on the Supply of Regulation.")" href="#footnote11_8asj5ms">11</a></p>
<p>Peltzman developed a model of economic regulation by elected officials.<a class="see-footnote" id="footnoteref12_sn32mtr" title="Peltzman, "Towards a More General Theory."" href="#footnote12_sn32mtr">12</a> His model need not be repeated here but certain conclusions are worth noting.</p>
<p>1) An elected representative tends to favor the politically most powerful interest group(s). Similarly, the legislature reflects the demand of the group which exerts the greatest political pressure to obtain desired results. In Samuels' words:</p>
<p class="indent2">opportunities for gain, whether pecuniary profit or other advantage, accrue to those who can use government.... If income distribution and risk allocation is a partial function of law then the law is an object of control for economic or other gain ... whether the instances be tariff protection, oil subsidies, real estate agents' attempts to ban "for sale" signs on private homes or any other type of property rights.<a class="see-footnote" id="footnoteref13_49fe3i0" title="Warren Samuels, "Interrelations Between Legal and Economic Processes,'' Journal of Law and Economics 14 (October 1971): 444." href="#footnote13_49fe3i0">13</a></p>
<p>The group which most desires a property right will be the group willing to give the most for the right in terms of votes, contributions, and so on.</p>
<p>2) When there are differences among members of an interest group, the benefits (or costs) which result from a particular rights assignment differ among members.</p>
<p>3) The favored interest group(s) is not favored to the extent that it could be. The reason this conclusion (as well as conclusion 2) holds is that the "marginal political return of a transfer must equal the marginal political cost" in order for an elected official to maintain his majority.<a class="see-footnote" id="footnoteref14_1niwu6k" title="Peltzman, "Towards a More General Theory," p. 217." href="#footnote14_1niwu6k">14</a> Thus, in assigning rights, elected regulators wish to have the marginal benefits which accrue to the favored interest group(s) equal the marginal costs which accrue to the losers.<a class="see-footnote" id="footnoteref15_wzlt154" title="Since elected representatives wish to meet the marginal conditions of the political exchange, it follows that the regulatory process should efficiently accomplish what it is designed to do (grant benefits to powerful special interests). For example, Posner concluded: "A corollary of the economic theory of regulation is that the regulatory process can be expected to operate with reasonable efficiency to achieve its ends. The ends are the product of a struggle between interest groups, but ... it would be contrary to the usual assumptions of economics to argue that wasteful or inappropriate means would be chosen to achieve those ends" (Posner, "Theories of Economic Regulation," p. 350)." href="#footnote15_wzlt154">15</a></p>
<p>Elected officials often delegate many regulatory powers to bureaucratic agencies and/or commissions, particularly at the state and federal levels. Regulatory powers are delegated to agencies and commissions because of the high transaction costs of decision-making in a large group (i.e., a legislature).<a class="see-footnote" id="footnoteref16_uhldue5" title="See Benson, "Observations on the Supply of Regulation."" href="#footnote16_uhldue5">16</a> Of course, when regulatory powers are delegated to agencies or commissions, the incentives of these bureaucrats and commissioners must also be examined. These regulatory authorities can be viewed as firms producing a service or a set of services — namely, the enforcement of legislatively determined property rights assignments. The enforcement services are exchanged for a budget. This type of exchange has been modeled by Niskanen,<a class="see-footnote" id="footnoteref17_8ym2xr6" title="William Niskanen, Bureaucracy and Representative Government (Chicago: Aldine-Atherton, 1971); and Niskanen, "Bureaucrats and Politicians," Journal of Law and Economics 18 (December 1975): 617–43." href="#footnote17_8ym2xr6">17</a> and his model has been modified to fit the supply of regulation in the context of the economic theory of regulation.<a class="see-footnote" id="footnoteref18_p25fed3" title="See Benson, "Observations on the Supply of Regulation."" href="#footnote18_p25fed3">18</a> Space constraints prevent presenting this model here but a brief summary of relevant assumptions and conclusions follows.</p>
<p>The important assumptions pertaining to each regulator ( commissioner or bureaucratic agency manager) are: 1) he is a utility maximizer, and 2) his utility is a function of income and non-monetary perquisites associated with his position (i.e., prestige, power, social and physical amenities, etc.). The level of regulatory enforcement preferred by a regulator is then assumed to depend upon the regulator's incentive structure as it relates to his utility function. Since both income and perquisites are directly related to bureau size, but generally only perquisites are related to commission size, the tendency for over-enforcement is stronger for a regulatory bureau than for a regulatory commission. However, both types of regulators prefer an output of regulation which exceeds the desires of the legislature. In addition, agencies and commissions are motivated to regulate inefficiently since a regulator typically can appropriate part of the budget allocated by legislators for his own benefit.<a class="see-footnote" id="footnoteref19_10dlyo6" title="Ibid." href="#footnote19_10dlyo6">19</a></p>
<p>Now, will legislators allow regulators to over-regulate and to regulate inefficiently? Their efforts to maximize a majority vote are constrained. Legislators have at least two functions to perform: 1) choosing the appropriate rights assignments, and 2) controlling regulators. Time and staff resources must be allocated between these two functions while attempting to maintain a majority. In this constrained majority-maintaining effort, legislators are willing to allow regulators to be inefficient and to over-enforce, but not to the degree that regulators wish.<a class="see-footnote" id="footnoteref20_oiz0pad" title="Ibid." href="#footnote20_oiz0pad">20</a> A legislator's choices are obviously not quite this simple, but the implication, in any case, is that a lawmaker faces a trade-off between the benefits of monitoring regulators (increased efficiency) and the benefits he can obtain by directing his time and staff to other activities (i.e., determining which interest groups are most powerful and what those groups are demanding). Thus, legislators simply cannot control agencies perfectly and, at the same time, determine the politically optimal rights assignment.</p>
<p>If this model of supply and demand in property rights approximates reality, certain historical facts should be observable. For example, since property rights assignments have been changing, there should be evidence that the dominant interest group also has changed. Furthermore, since there are many political units with control over the property rights within their respective spatial jurisdictions, property rights assignments should vary from one jurisdiction to another if the dominant interest groups vary.</p>
<h4>Changing Demand for Land Use Rights</h4>
<p>At the time of the American Revolution, the dogma of <em>laissez faire</em> expounded by Locke and Blackstone was widely accepted in America. Blackstone wrote:</p>
<p class="indent2">So great moreover is the regard of the law for private property, that it will not authorize the least violation of it; no, not even for the general good of the whole community. If a new road, for instance, were to be made through the grounds of a private person, it might perhaps be extensively beneficial to the public; but the law permits no man, or set of men, to do this without consent of the owner of the land. In vain it may be urged, that the good of the individual ought to yield to that of the community; for it would be dangerous to allow any private man, or even any public tribunal, to be judge of this common good, and to decide whether it be expedient or no. Besides the public good is in nothing more essentially interested than in the protection of every individual's private rights, as modelled by the municipal law.<a class="see-footnote" id="footnoteref21_bf905k1" title="William Blackstone, Commentaries on Laws of England (Chicago: Callaghan and Co., 1899), pp. 127–28." href="#footnote21_bf905k1">21</a></p>
<p>As a result of this wide acceptance of and demand for individual rights, the landowner had basically acquired the right to use his land as he saw fit. Productive landowners made up the dominant interest group concerned with land use rights, and the dominant land use was agriculture. American urban settlements in 1790 accounted for less than three percent of the nation's population. Thus, as Anderson and Hill noted, through the first half of the nineteenth century, the government at both the state and national levels "moved rapidly towards a policy of establishing private rights in land."<a class="see-footnote" id="footnoteref22_r3u8spd" title="Terry Anderson and Peter J. Hill, "The Role of Private Property in the History of American Agriculture, 1776–1976," American Journal of Agricultural Economics 8 (December 1975): 940." href="#footnote22_r3u8spd">22</a> Even when limitations on land use began to develop, they were justified on the basis of protection of private property (rather than of public welfare). For example, the "willingness to modify private property rights in the name of defending property values is characteristic of the early protagonists of zoning."<a class="see-footnote" id="footnoteref23_yt6ns91" title="John Delafons, Land-Use Controls in the United States (Cambridge, Mass: The MIT Press, 1969), p. 33." href="#footnote23_yt6ns91">23</a></p>
<p>In recent history, however, <em>restriction of private property rights</em> has become accepted by the courts. Limitations have been placed on the freedom of land use in the form of zoning and planning regulations. Public easements and the elimination of all private rights through the law of eminent domain and police power have been legalized. These limitations have been intensifying and increasing. Today when an individual buys a tract of land, he finds a smaller bundle of property rights associated with that land than was available a century or even a decade ago. Along with private restrictive covenants and other controls, he may find he can use his land only for certain purposes, build only certain kinds of structures, and occupy only a prescribed portion of his land up to a certain height. Often he cannot be sure of what his rights are, or what they will be in the future.</p>
<p>Rights to land have been transferred from private landowners either through police power or eminent domain. These two legal doctrines can be separated by the way the costs of a property rights transfers are allocated. If the landowner bears the costs, the rights modification resulted from police power. If the "public" bears all or part of the cost and the landowner receives compensation, the modification was provided through eminent domain. Although the two concepts are obviously different, the line between them is often unclear. However, in this brief historical summary of the development of land use regulation the two powers will be discussed separately.</p>
<p>An examination of the application of non-compensatory public measures to control the use of private land could start with the earliest settlements of the colonies. The controls that existed at that time generally applied only within urban areas and were used to curtail only the most obvious nuisances. Between the seventeenth and twentieth centuries the use of police power increased only slightly. However, by 1916 the regulation of private land use in urban areas had begun. In that year New York City adopted the nation's first comprehensive zoning law and the idea spread rapidly. An application of zoning by the town of Euclid, Ohio was upheld by the United States Supreme Court in 1926 and the planning revolution was legitimated.</p>
<p>From their inception local zoning and other land use restrictions have been exclusionary devices in the hands of local landowners, used primarily to protect property values and preserve existing characteristics of their communities. Typically then, the interest groups in conflict at the local level are residential landowner "citizens associations" (generally made up of only a small portion of the total citizenry), and developers who wish to establish some activity which the citizens association opposes.<a class="see-footnote" id="footnoteref24_gmwwwku" title="See Linowes and Allensworth, The Politics of Land Use." href="#footnote24_gmwwwku">24</a> Local chambers of commerce may, at times, support a citizens association (if the association disputes commercial development that would establish competitors for existing businesses), or may oppose the citizens association (if the proposed development might significantly expand local markets). Other local groups may also enter the regulatory arena regarding particular projects which will positively or negatively impact them.</p>
<p>In addition to protecting interests, zoning has functioned also as a means of transferring consumptive benefits to the public. Interest groups desiring such public consumptive rights then also play a role at the local level, but the local citizens association often is the group seeking such rights. The claim that police power has been used to provide public consumptive rights to land might be difficult to prove, since it is supposed to prevent harm, not provide benefits. However, in many cases public consumptive benefits are secondary, if not primary results. For example, hazard zoning, which segregates land uses with respect to physical classifications, has been used to limit private land use. The fact that land subject to hazard zoning provides recreational benefits to nonlandowners in the form of open space and scenery, as well as conservation of wildlife, has not invalidated such zoning. In <em>McCarthy v. City of Manhattan Beach</em> (1953), the California court upheld the designation of a "Beach Recreation District" and prohibited development by owners of shoreline property, despite the obvious intention to preserve the shoreline for public enjoyment. The designation was upheld because of hazards posed by storms.<a class="see-footnote" id="footnoteref25_clzdqxc" title="Subdivision exactions, which require developers to dedicate part of their land as a park, are also examples of how landowners are forced by regulators to provide public recreational use of private land." href="#footnote25_clzdqxc">25</a> The point is:</p>
<p class="indent2">Who is to say what is a public use? The law is what common sense would indicate; in essence, it holds that something serves a public purpose if the public thinks so. This, in practice, means what the legislature says the public wants, and though the two are not always synonymous, the courts tend to go along; if the public through its elected representatives designates a public purpose to be served, the courts reason, this justifies exercise of the public's power.<a class="see-footnote" id="footnoteref26_l8341n1" title="William Whyte, Securing Open Space for Urban America: Conservation Easements (Washington, D.C.: Urban Land Institute, 1968), p. 16." href="#footnote26_l8341n1">26</a></p>
<p>"Public" ownership of rights does not mean everyone benefits.</p>
<p>The general trend has been towards more and more use of police power to prevent certain types of land use and provide public consumptive rights to nonlandowners. Although the trend is most noticeable in urban areas, rural zoning is nevertheless in use. Wisconsin first authorized rural zoning by counties in 1923, and in 1929 its original act was amended to authorize the use of zoning to "regulate, restrict, and determine the areas in which agriculture, forestry, and recreation may be conducted." The recreation districts permitted resorts, recreational properties, residences, and forestry uses but excluded new agricultural developments and most industries. In this way, zoning has forced private landowners to produce recreation services even though that need not be the most profitable use of their land.</p>
<p>The first state-wide land use law was passed by Hawaii in 1960, and during the I 970's a number of states passed legislative measures broadening the role of state and regional agencies in land use control. State-wide zoning, rural zoning and other rural land use controls have developed primarily in states with relatively large urban and small rural, agricultural populations.</p>
<p>When compensation is paid to landowners, the transfer of property rights falls under the legal heading of eminent domain. As early as 1811, New York City provided for the taking of land for seven parks on Manhattan Island. Again the assigning of public property rights first took place in an urban area. In fact, the use of eminent domain by state and local governments preceded recognition of similar powers in the federal government, and largely resulted from the demand for urban parks. The urban park movement really started with the demand for, and purchase of, 840 acres to create Manhattan's Central Park in I 858. New York was soon followed by Boston, Chicago, St. Louis, and San Francisco.</p>
<p>The approval of eminent domain, first granted for fee simple public ownership of urban parks, has since been extended to include a variety of public land uses. The "public use" requirement has not been strongly challenged when land has been taken for open space and/ or recreation. Again, of course, public ownership does not mean everyone benefits. Stroup and Baden pointed out, for example, that</p>
<p class="indent2">various interest groups as well as interested individuals attempt to influence the forest service in its exercise of discretion. For example, the forest supervisor might be encouraged to restrict snowmobiles from a winter feeding area or refrain from road building on a watershed feeding a prime trout area.... Within this context it is unreasonable to expect politics to be absent from the management of the forest service.<a class="see-footnote" id="footnoteref27_j549nzl" title="Richard Stroup and John Baden, "Externality, Property Rights, and the Management of Our National Forests," Journal of Law and Economics 13 (October 1973): 303–305." href="#footnote27_j549nzl">27</a></p>
<p>If demand is strong enough, a group can obtain exclusive rights to "public" property, even though the costs are shared by many others (taxpayers).</p>
<p>Eminent domain does not have to lead to fee simple public ownership. The acquisition of "air rights" to property fronting on Boston's Copley Square was upheld in <em>Attorney General v. Williams in 1899</em>. Condemnation of interests less than fee simple did not become common until the metropolitan explosion of the 1950's, however. Acquisition of public easements for conservation, scenic, and other, related purposes through eminent domain has since occurred widely in open space and recreation planning.</p>
<p>State governments have joined local governments in using eminent domain to establish public rights. In fact, "acquisition of land by the states is being given new impetus by the emphasis on outdoor recreation generated by a rise in population and increased mobility and income of the people" and substantial federal financial aid for acquiring land for recreational purposes has "accelerated state-acquisition programs, particularly in the East."<a class="see-footnote" id="footnoteref28_7xcdayz" title=" American Forest Products Industries, Government Land Acquisition (Washington, D.C.: AFPI, 1965), p. 13." href="#footnote28_7xcdayz">28</a></p>
<p>Eminent domain is also being increasingly used by federal agencies to provide public rights. Before 1900 the dominant federal public land policy was disposal of the public domain. After that date reservation of remaining public lands became the dominant policy, and by 1934 the public domain was virtually closed. Even before 1934, however, the federal government had been adding to its land holdings. In 1911 Congress passed the Weeks Law, which authorized land acquisition to conserve "the navigability of navigable rivers," and since then the federal land holdings have been increasing. In fact, "emphasis of the federal government today in its public land policies is on acquisition," and since the late fifties and early sixties the "movement to acquire large areas of rural land for recreation has been gaining momentum."<a class="see-footnote" id="footnoteref29_w9kyj03" title="Ibid." href="#footnote29_w9kyj03">29</a> Agencies that have authority to buy land for purposes such as public works, national defense, and conservation now include additional acreage for recreation and other public uses in acquisition plans. Public consumptive uses of federal land may in fact be the primary or only purpose of acquisition in many cases. While most of the public domain is in relatively rural areas, the bulk of the land acquired in the twentieth century is in states with large urban populations. Why are such land use rights being transferred?</p>
<p>A trend which appears to be directly related to increasing public ownership was noted several times in the preceding discussion: the increase in the absolute and relative size of the urban population. At the same time rural per capita disposable income has continued to be lower than urban income. Thus, political power has shifted away from the rural agricultural sector towards the urban sector, since political power involves votes (population) and money. As the urban population has come to dominate the rural population, first local and then state and federal agencies have begun to transfer property rights from the private landowner to the public.</p>
<p>By examining the California vote for Proposition 20, the location of the demand for public consumptive rights is evident. Proposition 20 set up regulations for the entire California "Coastal Zone", defined as the area from three miles off the coast, inland to the highest elevation of the coastal mountain range. It passed by a 55 to 45 percent margin. The measure passed in 32 of California's 58 counties, including all of the populous counties around Los Angeles, San Diego, and San Francisco. In rural counties, such as Humboldt and Del Norte along the far north coast, it failed miserably. An analysis of the vote found that Proposition 20 did best in counties with a high degree of urbanization. The yes vote was negatively correlated with location along the coast.<a class="see-footnote" id="footnoteref30_2w6cty7" title="Healy, Land Use and the United States, p. 73." href="#footnote30_2w6cty7">30</a> Residents of the area to be regulated resisted the transfer of regulatory powers to some nonlocal government body because more interest groups have access to state ( or federal) officials than to local officials.<a class="see-footnote" id="footnoteref31_kcwt7ps" title=" See, for example, the discussion of state zoning in Wisconsin in Charles Geisler and Oscar Martinson, "Local Control of Land Use: Profile of a Problem," Land Economics 52 (August 1976): 371–82." href="#footnote31_kcwt7ps">31</a> Only local residents can significantly affect local official's reelection efforts. However, at the state level, nonlocal interests may be able to significantly impact local land use since nonlocal interests have a great deal to do with reelection efforts of many state office holders.</p>
<p>Vlassin noted that there has been a continued shift of land into non-agricultural uses in the East and in areas near rapidly growing metropolitan areas. National trends in net land use changes seem slight or moderate, but land use changes adjacent to metropolitan areas have been significant. There obviously are many uses involved here, including intensive urban uses and extensive non-agricultural uses. Publicly provided productive rights include transportation. Private consumptive uses include non-farm rural residences. In addition, "all manner of public recreation facilities and services are being demanded, ranging from large multiple purpose parks and forests to more specialized facilities such as playgrounds, beaches, public lakes and streams, wildlife refuges and areas, wilderness areas, scenic highways and trails, scenic overlooks, public campgrounds and picnic areas."<a class="see-footnote" id="footnoteref32_je5g37j" title="Raymond Vlassin, "Some Key Issues and Challenges Posed by Nonagricultural Demands for Rural Environments," American Journal of Agricultural Economics 53 (May 1972): 238." href="#footnote32_je5g37j">32</a> Some of these demands result in transfer of all rights from the private to the public sector through eminent domain. Some involve transfer of certain rights from landowners to the public through either eminent domain or police power. All transfers are made because urban based interest groups increasingly dominate the political regulatory process.</p>
<p>Greenwood and Edwards noticed the direct relationship between urbanization and the demand for public rights to land and wrote: "The more urbanized we become, the more we seem to cherish the thought of open space."<a class="see-footnote" id="footnoteref33_3u0nsjc" title="Neal Greenwood and J. M. B. Edwards, Human Environments and Natural Systems (North Scituate, Mass.: Duxbury Press, 1973), p. 290." href="#footnote33_3u0nsjc">33</a> An alternative explanation of this observation can be offered. Urban population is growing, and its income and leisure time are increasing. Therefore, the demand groups desiring public rights are willing to pay more to apply political pressure than in the past. The more urbanized an area becomes, the more powerful are interest groups which desire public consumptive rights. Open space has always been "cherished," but now the demand for public open space is being recognized and the property rights are being transferred to nonlandowners by the government. Terms such as "changes in taste" or "gradual awakening of public interest" need not be used to explain what appears to be changes in demand for public rights to land. In more and more cases, the politically dominant interest group is shifting from landowners to nonlandowners. As this continual change takes place government agencies transfer the rights.</p>
<p>Indications for the future are that this process of property rights transfer to the public sector will continue.</p>
<p class="indent2">Since the United States population ... may increase by as much as 50 to 100 million people by the year 2000, we can be absolutely certain that the amount of resources demanded [for public consumptive land uses] will also increase. Since there is every indication that the population increase will concentrate in the metropolitan and megalopolitan areas, this increased demand will have its origin in the metropolitan areas and will have its impact in nonmetropolitan areas, namely the rural environment.<a class="see-footnote" id="footnoteref34_4i6u61x" title="Vlassin, "Some Key Issues and Challenges," p. 239." href="#footnote34_4i6u61x">34</a></p>
<p>With increasing demand for more rights, there will be continual transfer of property rights from the private sector to the public sector. These future property rights transfers should be more noticeable in and near urban areas and in urbanized states, although increased federal pressure resulting from growing domination of national politics by urban based interests will cause gradual changes in predominantly rural states.</p>
<p>In addition to the changing property rights associated with increased urbanization, there is anecdotal evidence which indicates that land use regulation can be explained by the economic theory of regulation. Recall that Peltzman predicted elected representatives should differentiate between members of interests groups, and favor more than one interest group whenever possible. This implies that, when the relative strengths of interest groups vary over a regulatory jurisdiction or between jurisdictions, we should find different land use policies.</p>
<p>Property rights assignments for public uses of land do vary greatly from state to state and region to region. One example can be seen in the access to public waterways. Donald Levi, while discussing the Missouri case of <em>Elder v. Delcour</em>, pointed out: this case "clearly establishes that the public has the right to fish and otherwise use certain riparian waters for recreational purposes" in Missouri, but "in many states ... the right of the public to use natural lakes and streams may differ substantially or be unclear."<a class="see-footnote" id="footnoteref35_ons1pfk" title="Donald Levi, Agricultural Law (Columbia, Mo.: Lucas Brothers Publishers, 1976), p. 225." href="#footnote35_ons1pfk">35</a> This results because local and/ or state agencies have power to assign property rights, and because state and federal agencies can discriminate spatially.<a class="see-footnote" id="footnoteref36_mw4w1x4" title="Federal agencies, as well as many state agencies, can discriminate between spatially separated interest groups. In this way there can be differing property rights assignments, even under a common jurisdiction. Stroup and Baden pointed out, for example, that regional forest service supervisors often have power to assign rights (Stroup and Baden, "Externality, Property Rights, and the Management of Our National Forests," pp. 304–305)." href="#footnote36_mw4w1x4">36</a> Since some states and localities are more urbanized than others, relative interest group strength varies from state to state and locality to locality.</p>
<p>Peltzman also concluded that regulators will not act as perfect brokers for one interest group. An example of a land use regulator's not favoring one interest group to the total exclusion of another, less powerful interest arises in the context of California's Proposition 20 (on coastal zoning). First, note that Deacon and Shapiro found that the plan was most favored by the upper-income and well educated strata of society.<a class="see-footnote" id="footnoteref37_rtdkecy" title="Robert Deacon and Perry Shapiro, "Private Preferences for Collective Goods Revealed Through Voting Referenda," American Economic Review 65 (December 1975): 943–55." href="#footnote37_rtdkecy">37</a> Bobo and Shulman similarly concluded that "it can be argued, given vague references to distributional equity, that the purpose of the act, like most planning, was to preserve, protect, and restore coastal resources for the present and future generation of upper-income individuals," and, indeed, evidence indicates that the implementation of coastal zoning has typically meant exclusion of low-income people from select areas.<a class="see-footnote" id="footnoteref38_ym2rwwc" title="Bobo and Shulman, "Managing California's Coast," p. 76." href="#footnote38_ym2rwwc">38</a> However, this does not mean that the relatively well-to-do are the only group favored, to the exclusion of all others. For example, the State Commission denied a permit application of the Santa Monica Redevelopment Agency for 1,400 high-income apartments because the project did not include low- or moderate-income housing and publicly usable open space.<a class="see-footnote" id="footnoteref39_qm172jw" title="California Coastal Zone Conservation Commission Appeal No. 103–73." href="#footnote39_qm172jw">39</a> The agency redesigned the project to include 100 units of moderate-income housing for the elderly, 400 condominiums, and 8 acres of public park. The commission then granted a permit for the 100 units of moderate-income housing. Why? Obviously the elderly are increasingly well organized, and their demands are being recognized even though the result is not completely favorable to high-income groups.</p>
<p>One particular set of property rights deserves mention before moving to the impact of the observed trends. Landowners sometimes have the right to compensation when their land use rights are taken. However, this right has never been clearly defined, and there is growing pressure to increase the number of rights which can be transferred without compensation.<a class="see-footnote" id="footnoteref40_ho7ta1g" title=" For example, see Fred Bossleman, David Callies, and J. Banta, The Taking Issue (Washington, D.C.: Government Printing Office, 1973), pp. 318–19; Stroup and Baden, "Externality, Property Rights, and the Management of Our National Forests," pp. 150–57; and Healy, Land Use and the United States, p. 177." href="#footnote40_ho7ta1g">40</a> Regulators (and courts) are continually expanding the concept of the police power to limit or regulate property rights. Because, like any other right, the right to compensation is subject to regulatory interpretation and definition, regulatory authorities can attenuate this right if powerful special interests demand attenuation. Furthermore, as with other property rights assignments, the rights to compensation vary from one jurisdiction to another.</p>
<p class="indent2">The legal limits of how stringently a city or state can regulate the use of land without paying compensation to the owner are currently in flux. At issue is just how broad an interpretation one should give to the Fifth Amendment guarantee known as the "taking clause" ... "nor shall private property be taken for public use without just compensation." Some would argue that the clause goes no farther than to prohibit physical seizure of or outright use of property by the government; others claim that it makes a wide range of regulations subject to compensation. Courts in various states have handed down widely varying rulings.<a class="see-footnote" id="footnoteref41_2n0j8dt" title="Healy, Land Use and the United States, p. 177." href="#footnote41_2n0j8dt">41</a></p>
<p>It appears that as demand for public rights increases individuals can expect a further weakening of the right to compensation for the loss of rights.</p>
<h4>Implications of Observed Trends in Land Use Regulation</h4>
<p>There are several implications of the observed trends of changing rights and increasing state and federal involvement. These implications relate to political efficiency, the cost and size of government, productive and allocative efficiency, and social welfare.</p>
<p>First note that, as state and federal land use regulation becomes more important, there is increasing delegation of regulatory powers to commissioners and bureaucrats, both of whom (as discussed above) have incentives to over-regulate and to regulate inefficiently. As a result, the negative impact on losers of any regulatory policy is relatively large when the policy is enforced by a commission or bureau. Therefore these losers have greater incentives to organize and express demands to regulators. The government may respond by compensating this new interest group without taking too much from other organized interests. If so, then still another unorganized group will find itself losing rights or paying higher taxes and have increased incentives to organize. The government sector grows in order to deal with increasing demands from more and more organized interest groups. Furthermore, once an interest group is organized, the most significant costs of demanding government favors have been overcome. Often, the interest group begins to demand rights other than those originally sought. If its demand is strong enough, government responds. The very nature of the political regulatory process tends to cause the regulatory system to grow and rights assignments to be modified with increasing frequency.<a class="see-footnote" id="footnoteref42_cfi2sai" title="Benson, "Regulation — the Demand and Supply."" href="#footnote42_cfi2sai">42</a></p>
<p>Certainty increases the longer a given property rights assignment exists. One purpose for assigning property rights to land is to allow individual planning to incorporate more accurate predictions. Demsetz pointed out: "Should the practice of involuntary reassignment [of property rights] become common, all confidence in the longevity of property rights will be reduced and all long-run consequences of using property rights in various ways will tend to be neglected."<a class="see-footnote" id="footnoteref43_exkw0as" title="Harold Demsetz, "Some Aspects of Property Rights," Journal of Law and Economics 9 (October 1966): 67." href="#footnote43_exkw0as">43</a> Reassignments of property rights are becoming "common," particularly near urban areas. Therefore, "confidence in the longevity" is being reduced more in urban than in rural areas. Landowners near urban areas are becoming very uncertain because of continually changing rights assignments and the expectation of more changes in the future. For example: "The passage of Proposition 20 has left many builders and developers stranded on the beach, cut off from financing and wondering where they go from here."<a class="see-footnote" id="footnoteref44_2jf9zcs" title="Healy, Land Use and the United States, p. 88." href="#footnote44_2jf9zcs">44</a> The effective average cost curve must be relatively high for a producer facing relatively greater uncertainty, because the producer requires a greater return (normal profit) to induce him to stay in that activity.<a class="see-footnote" id="footnoteref45_131rf12" title="See Melvin Greenut, A Theory of the Firm in Economic Space (Austin, Tx.: Lone Star Publishers, 1971)." href="#footnote45_131rf12">45</a> Therefore urban area production with land as an input involves higher costs. There are transportation costs and other accessibility factors which increase the value of land near cities, but this analysis indicates that other factors (less uncertainty and a larger bundle of property rights) make rural land relatively more valuable and partially offset accessibility factors. There is a higher cost of production to rural area producers due to the capitalization of the resulting relatively high land rents. The long-run result has to be a higher price of output and lower quantity of commodities produced with land as an input, all other things being equal.<a class="see-footnote" id="footnoteref46_d4lg0u8" title="There are other consequences of the uncertainty created by property rights reassignments. If the producer knew what his rights were going to be in the future he could choose the most efficient means of production, given those rights. When he is uncertain about future rights he may choose an inefficient means of production, given the rights assignments that do develop. Of course, under uncertainty the producer also tends to make fewer changes because he is less sure of the present value of future costs and benefits." href="#footnote46_d4lg0u8">46</a></p>
<p>There is also a cost to society that results directly from the increasing public ownership of rights:</p>
<p class="indent2">Public attitudes toward outdoor recreation are probably more varied than they appear. But the kind of attitude that seems most in evidence is nothing less than a national scandal. For most Americans the word "public" seems to denote "up for grabs." The word "use" does not, for them, imply sharing in common or enjoying and preserving but rather using up, exploiting and discarding. In short, the philosophy seems to be that in public parks anyone can do anything because "after all, I pay taxes."<a class="see-footnote" id="footnoteref47_rufxiqi" title="Greenwood and Edwards, Human Environment and Natural Systems, pp. 303–304." href="#footnote47_rufxiqi">47</a></p>
<p>The increased land damage associated with public rights can result from two factors. First, if the users do not have to pay, there is overuse because of excess demand. Secondly, the fact that rights are assigned to the public rather than private individuals, in itself, implies the attitude described above. Demsetz explained that this results from individual incentives associated with benefits and costs of public rights. When a right is publicly owned, the form of ownership fails to concentrate the costs of use on the individual. When he maximizes his utility with respect to the public right, he tends to overuse the right since some of the costs are born by others (other users and non-using taxpayers). The value of the land diminishes more quickly than under private ownership of all rights.<a class="see-footnote" id="footnoteref48_iq30289" title="Demsetz, "Towards a Theory of Property Rights," American Economic Review 57 (May 1967): 354–57." href="#footnote48_iq30289">48</a></p>
<p>The cost of maintaining a public assignment of property rights tends to be higher than the costs associated with private rights, as the above argument by Demsetz indicates. It is conceivable that users of public rights might agree to curtail their use, if negotiating and policing costs were zero. Each would have to agree to abridge his rights. However, it is difficult (costly) for a large number of persons to reach a mutually satisfactory agreement, especially when any holdout can use the right as much as he wishes. Even if an agreement could be reached, the policing costs would be high, since there is always an incentive to break the agreement in order to maximize individual utility.</p>
<p>Much of the maintenance costs of a property rights assignment are associated with preventing conflicts or negotiating settlements. There are externalities (and therefore conflicts) associated with private property rights. The owner of land use rights does not control the rights to other individuals' land. He has no incentive (without negotiations or policing) to consider them. The same kind of externality exists in the case public property rights, only it is more costly. Demsetz explained that a system of private, rather than public, rights has fewer conflicts to arbitrate or prevent, and that when a conflict occurs fewer people are involved. Therefore, maintaining a system of private rights to land should be less costly and involve a smaller government sector. Correspondingly, the trend toward transfer of private rights to public rights implies that the regulatory sector must grow.<a class="see-footnote" id="footnoteref48_q0rg2hz" title="Demsetz, "Towards a Theory of Property Rights," American Economic Review 57 (May 1967): 354–57." href="#footnote48_iq30289">48</a></p>
<p>The excuse often used for taking private rights is that individuals have been using those rights to create negative externalities. However, assignment of rights to the public also results in negative externalities. Demsetz points out that the negative externalities associated with public ownership tend to be greater than with private ownership.<a class="see-footnote" id="footnoteref50_88qa13g" title="Ibid." href="#footnote50_88qa13g">50</a> These external costs are partially reflected in the maintenance costs of the regulatory agency. However, no regulatory system ever forces internalization of all external costs. It can be argued that the non-internalized externalities will be greater with public rights assignments, since the externalities created are greater. If these costs are not completely internalized, the long-run effect is a reduction in the value of land being damaged. This is another cost which landowners have to bear (or which taxpayers bear, if compensation is paid or if the land is publicly owned).<a class="see-footnote" id="footnoteref51_1ndh9j6" title="Land being damaged is less productive so there is another difference in costs between producers near the urban areas and producers in more rural areas. Landowners near urban areas must spend more to repair damages and maintain productivity. Again, the rent received by more rural landowners is capitalized into the land values and the cost of production is higher. Product price must be higher and output lower relative to what it would be with rights assigned to private individuals." href="#footnote51_1ndh9j6">51</a></p>
<p>The traditional explanation of regulation is that the government steps in to prevent or adjust for market failure. The "invisible hand" has failed to guide the actions of self-interested individuals for the benefit of society because of externalities or monopoly power. In other words, what is good for the individual is not good for society, so regulation is required. An alternative explanation of regulation has been offered here. Regulation is simply the way in which self-interested public officials provide benefits, in the form of property rights, to self-interested individuals who form interest groups. If this is true, then government regulation appears to be creating more externalities than it prevents. This results because what is good for individuals who demand and supply regulatory changes in property rights is not good for society as a whole. This "government failure" may in fact be more costly to society than any market failure.</p>
<ul class="footnotes"><li class="footnote" id="footnote1_84a7627"><a class="footnote-label" href="#footnoteref1_84a7627">1.</a> Stigler and several others advanced this economic theory of regulation primarily as an explanation of industrial regulation. See George Stigler, "The Theory of Economic Regulation," <em>Bell Journal of Economics and Management Science</em> 2 (Spring 1971): 3–27; Bruce Benson, "Observations on Supply of Regulation in the Context of Stigler's Theory of Economic Regulation," Pennsylvania State University, Working Paper, March 1981; Benson, "Regulation — the Demand and Supply of Property Rights," <em>Appalachian Business Review</em> (Special Issue on Regulation) 8 (1981): 22–28; Samuel Peltzman, "Towards a More General Theory of Regulation," <em>Journal of Law and Economics</em> 19 (August 1976): 211–40; and Richard Posner, "Theories of Economic Regulation, <em>Bell Journal of Economics and Management Science</em> 5 (Autumn 1974): 335-58. For a discussion of supporting evidence, see Benson, "Observations on the Supply of Regulation."</li>
<li class="footnote" id="footnote2_rb9hpxl"><a class="footnote-label" href="#footnoteref2_rb9hpxl">2.</a> William Sanders, "Property Rights and the Political Economy of Resource Scarcity: Comment," <em>American Journal of Agricultural Economics</em> 61 (February 1979): 116–18. For a sample of discussions of the important role of interest groups in land use regulation, also see: Benjamin Bobo and David Shulman, "Managing California's Coast: The Problem of Housing Distribution," <em>California Management Review</em> 20 (Fall 1977): 74–80; Robert Healy, <em>Land Use and the States</em> (Baltimore: John Hopkins University Press, 1976); and Robert Linowes and Don T. Allensworth, <em>The Politics of Land Use</em> (New York: Praeger Publishers, 1973).</li>
<li class="footnote" id="footnote3_85g0t9r"><a class="footnote-label" href="#footnoteref3_85g0t9r">3.</a> Posner, "Theories of Economic Regulation."</li>
<li class="footnote" id="footnote4_sqx86oo"><a class="footnote-label" href="#footnoteref4_sqx86oo">4.</a> Stigler, Peltzman, and others contend that the object being demanded and supplied is a transfer of wealth. (See Stigler, "The Theory of Economic Regulation"; and Peltzman, "Towards a More General Theory.") However, a property rights view provides several important insights into the regulatory process and eliminates a number of the criticisms of the economic theory of regulation. For discussion of this point, see the following by the present author: "Observations on the Supply of Regulation," and "Regulation — the Demand and Supply."</li>
<li class="footnote" id="footnote5_sebp9cl"><a class="footnote-label" href="#footnoteref5_sebp9cl">5.</a> William Craig Stubblebine, "On Property Rights and Institutions," in Henry Manne, ed., <em>The Economics of Legal Relations</em> (St. Paul: West Publishing, 1972), p. 15.</li>
<li class="footnote" id="footnote6_45hk7gs"><a class="footnote-label" href="#footnoteref6_45hk7gs">6.</a> Rutherford Platt, <em>The Open Space Decision Process</em> (Chicago: University of Chicago Press, 1972), p. 16.</li>
<li class="footnote" id="footnote7_l45jyaj"><a class="footnote-label" href="#footnoteref7_l45jyaj">7.</a> Stigler, "The Theory of Economic Regulation."</li>
<li class="footnote" id="footnote8_h022poy"><a class="footnote-label" href="#footnoteref8_h022poy">8.</a> See Posner ("Theories of Economic Regulation") for a detailed discussion of the costs of organization.</li>
<li class="footnote" id="footnote9_l4d58ej"><a class="footnote-label" href="#footnoteref9_l4d58ej">9.</a> See Peltzman, "Towards a More General Theory"; Jack Hirshleifer, "Comment," <em>Journal of Law and Economics</em> 19 (August 1976): 241-44; and Benson, "Regulation — the Demand and Supply."</li>
<li class="footnote" id="footnote10_7hwzb5a"><a class="footnote-label" href="#footnoteref10_7hwzb5a">10.</a> Stubblebine, "On Property Rights and Institutions," p. 10.</li>
<li class="footnote" id="footnote11_8asj5ms"><a class="footnote-label" href="#footnoteref11_8asj5ms">11.</a> In many cases, of course, regulatory authorities have power both to make property rights assignments and to enforce the assignments. (See Benson, "Observations on the Supply of Regulation.")</li>
<li class="footnote" id="footnote12_sn32mtr"><a class="footnote-label" href="#footnoteref12_sn32mtr">12.</a> Peltzman, "Towards a More General Theory."</li>
<li class="footnote" id="footnote13_49fe3i0"><a class="footnote-label" href="#footnoteref13_49fe3i0">13.</a> Warren Samuels, "Interrelations Between Legal and Economic Processes,'' <em>Journal of Law and Economics</em> 14 (October 1971): 444.</li>
<li class="footnote" id="footnote14_1niwu6k"><a class="footnote-label" href="#footnoteref14_1niwu6k">14.</a> Peltzman, "Towards a More General Theory," p. 217.</li>
<li class="footnote" id="footnote15_wzlt154"><a class="footnote-label" href="#footnoteref15_wzlt154">15.</a> Since elected representatives wish to meet the marginal conditions of the political exchange, it follows that the regulatory process should efficiently accomplish what it is designed to do (grant benefits to powerful special interests). For example, Posner concluded: "A corollary of the economic theory of regulation is that the regulatory process can be expected to operate with reasonable efficiency to achieve its ends. The ends are the product of a struggle between interest groups, but ... it would be contrary to the usual assumptions of economics to argue that wasteful or inappropriate means would be chosen to achieve those ends" (Posner, "Theories of Economic Regulation," p. 350).</li>
<li class="footnote" id="footnote16_uhldue5"><a class="footnote-label" href="#footnoteref16_uhldue5">16.</a> See Benson, "Observations on the Supply of Regulation."</li>
<li class="footnote" id="footnote17_8ym2xr6"><a class="footnote-label" href="#footnoteref17_8ym2xr6">17.</a> William Niskanen, <em>Bureaucracy and Representative Government</em> (Chicago: Aldine-Atherton, 1971); and Niskanen, "Bureaucrats and Politicians," <em>Journal of Law and Economics</em> 18 (December 1975): 617–43.</li>
<li class="footnote" id="footnote18_p25fed3"><a class="footnote-label" href="#footnoteref18_p25fed3">18.</a> See Benson, "Observations on the Supply of Regulation."</li>
<li class="footnote" id="footnote19_10dlyo6"><a class="footnote-label" href="#footnoteref19_10dlyo6">19.</a> Ibid.</li>
<li class="footnote" id="footnote20_oiz0pad"><a class="footnote-label" href="#footnoteref20_oiz0pad">20.</a> Ibid.</li>
<li class="footnote" id="footnote21_bf905k1"><a class="footnote-label" href="#footnoteref21_bf905k1">21.</a> William Blackstone, <em>Commentaries on Laws of England</em> (Chicago: Callaghan and Co., 1899), pp. 127–28.</li>
<li class="footnote" id="footnote22_r3u8spd"><a class="footnote-label" href="#footnoteref22_r3u8spd">22.</a> Terry Anderson and Peter J. Hill, "The Role of Private Property in the History of American Agriculture, 1776–1976," <em>American Journal of Agricultural Economics</em> 8 (December 1975): 940.</li>
<li class="footnote" id="footnote23_yt6ns91"><a class="footnote-label" href="#footnoteref23_yt6ns91">23.</a> John Delafons, <em>Land-Use Controls in the United States</em> (Cambridge, Mass: The MIT Press, 1969), p. 33.</li>
<li class="footnote" id="footnote24_gmwwwku"><a class="footnote-label" href="#footnoteref24_gmwwwku">24.</a> See Linowes and Allensworth, <em>The Politics of Land Use</em>.</li>
<li class="footnote" id="footnote25_clzdqxc"><a class="footnote-label" href="#footnoteref25_clzdqxc">25.</a> Subdivision exactions, which require developers to dedicate part of their land as a park, are also examples of how landowners are forced by regulators to provide public recreational use of private land.</li>
<li class="footnote" id="footnote26_l8341n1"><a class="footnote-label" href="#footnoteref26_l8341n1">26.</a> William Whyte, <em>Securing Open Space for Urban America: Conservation Easements</em> (Washington, D.C.: Urban Land Institute, 1968), p. 16.</li>
<li class="footnote" id="footnote27_j549nzl"><a class="footnote-label" href="#footnoteref27_j549nzl">27.</a> Richard Stroup and John Baden, "Externality, Property Rights, and the Management of Our National Forests," <em>Journal of Law and Economics</em> 13 (October 1973): 303–305.</li>
<li class="footnote" id="footnote28_7xcdayz"><a class="footnote-label" href="#footnoteref28_7xcdayz">28.</a> American Forest Products Industries, <em>Government Land Acquisition</em> (Washington, D.C.: AFPI, 1965), p. 13.</li>
<li class="footnote" id="footnote29_w9kyj03"><a class="footnote-label" href="#footnoteref29_w9kyj03">29.</a> Ibid.</li>
<li class="footnote" id="footnote30_2w6cty7"><a class="footnote-label" href="#footnoteref30_2w6cty7">30.</a> Healy, <em>Land Use and the United States</em>, p. 73.</li>
<li class="footnote" id="footnote31_kcwt7ps"><a class="footnote-label" href="#footnoteref31_kcwt7ps">31.</a> See, for example, the discussion of state zoning in Wisconsin in Charles Geisler and Oscar Martinson, "Local Control of Land Use: Profile of a Problem," <em>Land Economics</em> 52 (August 1976): 371–82.</li>
<li class="footnote" id="footnote32_je5g37j"><a class="footnote-label" href="#footnoteref32_je5g37j">32.</a> Raymond Vlassin, "Some Key Issues and Challenges Posed by Nonagricultural Demands for Rural Environments," <em>American Journal of Agricultural Economics</em> 53 (May 1972): 238.</li>
<li class="footnote" id="footnote33_3u0nsjc"><a class="footnote-label" href="#footnoteref33_3u0nsjc">33.</a> Neal Greenwood and J. M. B. Edwards, <em>Human Environments and Natural Systems</em> (North Scituate, Mass.: Duxbury Press, 1973), p. 290.</li>
<li class="footnote" id="footnote34_4i6u61x"><a class="footnote-label" href="#footnoteref34_4i6u61x">34.</a> Vlassin, "Some Key Issues and Challenges," p. 239.</li>
<li class="footnote" id="footnote35_ons1pfk"><a class="footnote-label" href="#footnoteref35_ons1pfk">35.</a> Donald Levi, <em>Agricultural Law</em> (Columbia, Mo.: Lucas Brothers Publishers, 1976), p. 225.</li>
<li class="footnote" id="footnote36_mw4w1x4"><a class="footnote-label" href="#footnoteref36_mw4w1x4">36.</a> Federal agencies, as well as many state agencies, can discriminate between spatially separated interest groups. In this way there can be differing property rights assignments, even under a common jurisdiction. Stroup and Baden pointed out, for example, that regional forest service supervisors often have power to assign rights (Stroup and Baden, "Externality, Property Rights, and the Management of Our National Forests," pp. 304–305).</li>
<li class="footnote" id="footnote37_rtdkecy"><a class="footnote-label" href="#footnoteref37_rtdkecy">37.</a> Robert Deacon and Perry Shapiro, "Private Preferences for Collective Goods Revealed Through Voting Referenda," <em>American Economic Review</em> 65 (December 1975): 943–55.</li>
<li class="footnote" id="footnote38_ym2rwwc"><a class="footnote-label" href="#footnoteref38_ym2rwwc">38.</a> Bobo and Shulman, "Managing California's Coast," p. 76.</li>
<li class="footnote" id="footnote39_qm172jw"><a class="footnote-label" href="#footnoteref39_qm172jw">39.</a> California Coastal Zone Conservation Commission Appeal No. 103–73.</li>
<li class="footnote" id="footnote40_ho7ta1g"><a class="footnote-label" href="#footnoteref40_ho7ta1g">40.</a> For example, see Fred Bossleman, David Callies, and J. Banta, <em>The Taking Issue</em> (Washington, D.C.: Government Printing Office, 1973), pp. 318–19; Stroup and Baden, "Externality, Property Rights, and the Management of Our National Forests," pp. 150–57; and Healy, <em>Land Use and the United State</em>s, p. 177.</li>
<li class="footnote" id="footnote41_2n0j8dt"><a class="footnote-label" href="#footnoteref41_2n0j8dt">41.</a> Healy, <em>Land Use and the United States</em>, p. 177.</li>
<li class="footnote" id="footnote42_cfi2sai"><a class="footnote-label" href="#footnoteref42_cfi2sai">42.</a> Benson, "Regulation — the Demand and Supply."</li>
<li class="footnote" id="footnote43_exkw0as"><a class="footnote-label" href="#footnoteref43_exkw0as">43.</a> Harold Demsetz, "Some Aspects of Property Rights," <em>Journal of Law and Economics</em> 9 (October 1966): 67.</li>
<li class="footnote" id="footnote44_2jf9zcs"><a class="footnote-label" href="#footnoteref44_2jf9zcs">44.</a> Healy, <em>Land Use and the United States</em>, p. 88.</li>
<li class="footnote" id="footnote45_131rf12"><a class="footnote-label" href="#footnoteref45_131rf12">45.</a> See Melvin Greenut, <em>A Theory of the Firm in Economic Space</em> (Austin, Tx.: Lone Star Publishers, 1971).</li>
<li class="footnote" id="footnote46_d4lg0u8"><a class="footnote-label" href="#footnoteref46_d4lg0u8">46.</a> There are other consequences of the uncertainty created by property rights reassignments. If the producer knew what his rights were going to be in the future he could choose the most efficient means of production, given those rights. When he is uncertain about future rights he may choose an inefficient means of production, given the rights assignments that do develop. Of course, under uncertainty the producer also tends to make fewer changes because he is less sure of the present value of future costs and benefits.</li>
<li class="footnote" id="footnote47_rufxiqi"><a class="footnote-label" href="#footnoteref47_rufxiqi">47.</a> Greenwood and Edwards, <em>Human Environment and Natural Systems</em>, pp. 303–304.</li>
<li class="footnote" id="footnote48_iq30289"><a href="#footnoteref48_iq30289" class="footnote-label">48.</a> <a class="footnote-multi" href="#footnoteref48_iq30289">a.</a> <a class="footnote-multi" href="#footnoteref48_q0rg2hz">b.</a> Demsetz, "Towards a Theory of Property Rights," <em>American Economic Review</em> 57 (May 1967): 354–57.</li>
<li class="footnote" id="footnote50_88qa13g"><a class="footnote-label" href="#footnoteref50_88qa13g">50.</a> Ibid.</li>
<li class="footnote" id="footnote51_1ndh9j6"><a class="footnote-label" href="#footnoteref51_1ndh9j6">51.</a> Land being damaged is less productive so there is another difference in costs between producers near the urban areas and producers in more rural areas. Landowners near urban areas must spend more to repair damages and maintain productivity. Again, the rent received by more rural landowners is capitalized into the land values and the cost of production is higher. Product price must be higher and output lower relative to what it would be with rights assigned to private individuals.</li>
</ul>Bruce L. BensonLand Use Regulation: A Supply and Demand Analysis of Changing Property Rights<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/JLS_Logo_3_20141029.jpg?itok=HTmr1Has" width="240" alt="The Journal of Libertarian Studies" title="The Journal of Libertarian Studies" />18539November 28, 2018 - 2:00 PMInterventionismThe Brutality of Slaveryhttps://mises.org/node/44734
<p>In a slave system, threats of brutality underlay the whole relationship.</p>
<p>Narrated by Floy Lilley. <a href="https://mises.org/library/brutality-slavery" target="_blank">This article</a> is excerpted from <em>Conceived in Liberty</em>, Volume 1, Chapter 6, "The Social Structure of Virginia: Bondservants and Slaves".</p>
Murray N. RothbardThe Brutality of Slavery<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/AudioMisesWire_750x516_20180223.jpg?itok=5JRlqpkV" width="240" alt="Audio Mises Wire" title="Audio Mises Wire" />44734November 14, 2018 - 4:00 PMInterventionismThe Brutality of Slaveryhttps://mises.org/node/6449
<p>[This article is excerpted from <a href="http://mises.org/document/3006"><i>Conceived in Liberty</i></a>, volume 1, chapter 6, "The Social Structure of Virginia: Bondservants and Slaves". An MP3 audio file of this article, narrated by Floy Lilley, is <a href="http://mises.org/media/2356/6-The-Social-Structure-of-Virginia-Bondservants-and-Slaves">available for download</a>.]</p>
<p>Until the 1670s, the bulk of forced labor in Virginia was indentured service (largely white, but some Negro); Negro slavery was negligible. In 1683 there were 12,000 indentured servants in Virginia and only 3,000 slaves of a total population of 44,000. Masters generally preferred bondservants for two reasons. First, they could exploit the bondservants more ruthlessly because they did not <i>own</i> them permanently, as they did their slaves; on the other hand, the slaves were completely their owners’ capital and hence the masters were economically compelled to try to preserve the capital value of their human tools of production. Second, the bondservants, looking forward to their freedom, could be more productive laborers than the slaves, who were deprived of all hope for the future.</p>
<p>As the colony grew, the number of bondservants grew also, although as servants were repeatedly set free, their proportion to the population of Virginia declined. Since the service was temporary, a large new supply had to be continually furnished. There were seven sources of bondservice, two voluntary (initially) and five compulsory. The former consisted partly of “redemptioners” who bound themselves for four to seven years, in return for their passage money to America. It is estimated that seventy percent of all immigration in the colonies throughout the colonial era consisted of redemptioners. The other voluntary category consisted of apprentices, children of the English poor, who were bound out until the age of twenty-one. In the compulsory category were: (a) impoverished and orphaned English children shipped to the colonies by the English government; (b) colonists bound to service in lieu of imprisonment for debt (the universal punishment for all nonpayment in that period); (c) colonial criminals who were simply farmed out by the authorities to the mastership of private employers; (d) poor English children or adults kidnapped by professional “crimps”—one of whom boasted of seizing 500 children annually for a dozen years; and (e) British convicts choosing servitude in America for seven to fourteen years in lieu of all prison terms in England. The last were usually petty thieves or political prisoners—and Virginia absorbed a large portion of the transported criminals.</p>
<p>As an example of the grounds for deporting political prisoners into bondage, an English law in force in the mid-1660s banished to the colonies anyone convicted three times of attempting an unlawful meeting—a law aimed mostly at the Quakers. Hundreds of Scottish nationalist rebels, particularly after the Scottish uprising of 1679, were shipped to the colonies as political criminals. An act of 1670 banished to the colonies anyone with knowledge of illegal religious or political activity, who refused to turn informer for the government.</p>
<p>During his term of bondage, the indentured servant received no monetary payment. His hours and conditions of work were set absolutely by the will of his master who punished the servant at his own discretion. Flight from the master’s service was punishable by beating, or by doubling or tripling the term of indenture. The bondservants were frequently beaten, branded, chained to their work, and tortured. The frequent maltreatment of bondservants is so indicated in a corrective Virginia act of 1662: “The barbarous usage of some servants by cruel masters being so much scandal and infamy to the country... that people who would willingly adventure themselves hither, are through fears thereof diverted”—thus diminishing the needed supply of indentured servants.</p>
<p>Many of the oppressed servants were moved to the length of open resistance. The major form of resistance was flight, either individually or in groups; this spurred their employers to search for them by various means, including newspaper advertisements. Work stoppages were also employed as a method of struggle. But more vigorous rebellions also occurred especially in Virginia in 1659, 1661, 1663, and 1681. Rebellions of servants were particularly pressing in the 1660s because of the particularly large number of political prisoners taken in England during that decade. Independent and rebellious by nature, these men had been shipped to the colonies as bondservants. Stringent laws were passed in the 1660s against runaway servants striving to gain their freedom.</p>
<p>In all cases, the servant revolts for freedom were totally crushed and the leaders executed. Demands of the rebelling servants ranged from improved conditions and better food to outright freedom. The leading example was the servant uprising of 1661 in York County, Virginia, led by Isaac Friend and William Clutton. Friend had exhorted the other servants that “he would be the first and lead them and cry as they went along <i>who would be for liberty and freed from bondage</i> and that there would be enough come to them, and they would go through the country and kill those who made any opposition and that they would either be free or die for it.”<a class="see-footnote" id="footnoteref1_rcs88l9" title="Abbot E. Smith, Colonists in Bondage." href="#footnote1_rcs88l9">1</a> The rebels were treated with surprising leniency by the county court, but this unwonted spirit quickly evaporated with another servant uprising in 1663.</p>
<p>This servant rebellion in York, Middlesex, and Gloucester counties was betrayed by a servant named Birkenhead, who was rewarded for his renegacy by the House of Burgesses with his freedom and 5,000 pounds of tobacco. The rebel leaders, however,—former soldiers under Cromwell—were ruthlessly treated; nine were indicted for high treason and four actually executed. In 1672 a servant plot to gain freedom was uncovered and a Katherine Nugent suffered thirty lashes for complicity. A law was passed forbidding servants from leaving home without special permits and meetings of servants were further repressed.</p>
<p>One of the first servant rebellions occurred in the neighboring Chesapeake tobacco colony of Maryland. In 1644 Edward Robinson and two brothers were convicted for armed rebellion for the purpose of liberating bondservants. Thirteen years later Robert Chessick, a recaptured runaway servant in Maryland, persuaded several servants of various masters to run away to the Swedish settlements on the Delaware River. Chessick and a dozen other servants seized a master’s boat, as well as arms for self-defense in case of attempted capture. But the men were captured and Chessick was given thirty lashes. As a special refinement, one of Chessick’s friends and abettors in the escape, John Beale, was forced to perform the whipping.</p>
<p>In 1663 the bondservants of Richard Preston of Maryland went on strike and refused to work in protest against the lack of meat. The Maryland court sentenced the six disobedient servants to thirty lashes each, with two of the most moderate rebels compelled to perform the whipping. Facing <i>force majeure,</i> all the servants abased themselves and begged forgiveness from their master and from the court, which suspended the sentence on good behavior.</p>
<p>In Virginia a servant rebellion against a master, Captain Sisbey, occurred as early as 1638; the lower Norfolk court ordered the enormous total of one hundred lashes on each rebel. In 1640 six servants of Captain William Pierce tried to escape to the Dutch settlements. The runaways were apprehended and brutally punished, lest this set “a dangerous precedent for the future time.” The prisoners were sentenced to be whipped and branded, to work in shackles, and to have their terms of bondage extended.</p>
<p>By the late seventeenth century the supply of bondservants began to dry up. While the opening of new colonies and wider settlements increased the <i>demand</i> for bondservants, the <i>supply</i> dwindled greatly as the English government finally cracked down on the organized practice of kidnapping and on the shipping of convicts to the colonies. And so the planters turned to the import and purchase of Negro slaves. In Virginia there had been 50 Negroes, the bulk of them slaves, out of a total population of 2,500 in 1630; 950 Negroes out of 27,000 in 1660; and 3,000 Negroes out of 44,000 in 1680—a steadily rising proportion, but still limited to less than seven percent of the population. But in ten years, by 1690, the proportion of Negroes had jumped to over 9,000 out of 53,000, approximately seventeen percent. And by 1700, the number was 16,000 out of a population of 58,000, approximately twenty-eight percent. And of the total <i>labor force</i>—the working population—this undoubtedly reflected a considerably higher proportion of Negroes.</p>
<p>How the Negro slaves were treated may be gauged by the diary of the aforementioned William Byrd II, who felt himself to be a kindly master and often inveighed against “brutes who mistreat their slaves.” Typical examples of this kindly treatment were entered in his diary:</p>
<blockquote><p class="hang1" style="margin-top:30px;">2-8-09: Jenny and Eugene were whipped.</p>
<p class="hang1">5-13-09: Mrs. Byrd whips the nurse.</p>
<p class="hang1">6-10-09: Eugene (a child) was whipped for running away and had the bit put on him.</p>
<p class="hang1">11-30-09: Jenny and Eugene were whipped.</p>
<p class="hang1">12-16-09: Eugene was whipped for doing nothing yesterday.</p>
<p class="hang1">4-17-10: Byrd helped to investigate slaves tried for “High Treason”; two were hanged.</p>
<p class="hang1">7-1-10: The Negro woman ran away again with the bit in her mouth.</p>
<p class="hang1">7-15-10: My wife, against my will, caused little Jenny to be burned with a hot iron.</p>
<p class="hang1">8-22-10: I had a severe quarrel with little Jenny and beat her too much for which I was sorry.</p>
<p class="hang1">1-22-11: A slave “pretends to be sick.” I put a branding iron on the place he claimed of and put the bit on him.</p></blockquote>
<p>It is pointless to criticize such passages as only selected instances of cruel treatment, counterbalanced by acts of kindness by Byrd and other planters toward their slaves. For the point is not only that the slave system was one where such acts <i>could</i> take place; the point is that <i>threats</i> of brutality underlay the whole relationship. For the essence of slavery is that human beings, with their inherent freedom of will, with individual desires and convictions and purposes, are used as <i>capital,</i> as tools for the benefit of their master. The slave is therefore habitually forced into types and degrees of work that he would not have freely undertaken; by necessity, therefore, the bit and the lash become the motor of the slave system. The myth of the kindly master camouflages the inherent brutality and savagery of the slave system.</p>
<p>One historical myth holds that since the slaves were their masters’ <i>capital,</i> the masters’ economic self-interest dictated kindly treatment of their property. But again, the masters always had to make sure that the property was really <i>theirs,</i> and for this, systematic brutality was needed to turn labor from natural into coerced channels for the benefit of the master. And, second, what of property that had outlived its usefulness? Of capital that no longer promised a return to the master? Of slaves too old or too ill to continue earning their masters a return? What sort of treatment did the economic self-interest of the master dictate for slaves who could no longer repay the costs of their subsistence?</p>
<p>Slaves resisted their plight in many ways, ranging from such nonviolent methods as work slowdowns, feigning illness, and flight, to sabotage, arson, and outright insurrection. Insurrections were always doomed to failure, outnumbered as the slaves were in the population. And yet the slave revolts appeared and reappeared. There were considerable slave plots in Virginia in 1687, 1709–10, 1722–23, and 1730. A joint conspiracy of great numbers of Negro and Indian slaves in Surry and Isle of Wight counties was suppressed in 1709, and another Negro slave conspiracy crushed in Surry County the following year. The slave who betrayed his fellows was granted his freedom by the grateful master. The 1730 uprising occurred in five counties of Virginia, and centered on the town of Williamsburg. A few weeks before the insurrection, several suspected slaves were arrested and whipped. An insurrection was then planned for the future, but was betrayed and the leaders executed.</p>
<p>Joint flight by slaves and servants was also common during the seventeenth century, as well as joint participation in plots and uprisings. In 1663 Negro slaves and white indentured servants in Virginia plotted an extensive revolt, and a number of the rebels were executed. The colonists appointed the day as one of prayer and thanksgiving for being spared the revolt. Neither slave nor indentured servant was permitted to marry without the master’s consent; yet there is record of frequent cohabitation, despite prohibitory laws.</p>
<p>It has been maintained in mitigation of the brutality of the American slave system that the Negroes were <i>purchased</i> from African chieftains, who had enslaved them there. It is true that the slaves were also slaves in Africa, but it is also true that African slavery never envisioned the vast scope, the massive dragooning of forced labor that marked American plantation slavery. Furthermore, the existence of a ready white market for slaves greatly expanded the extent of slavery in Africa, as well as the intensity of the intertribal wars through which slavery came about. As is usually the case on the market, demand stimulated supply. Moreover, African slavery did not include transportation under such monstrous conditions that a large percentage could not survive, or the brutal “seasoning” process in a West Indies way station to make sure that only those fit for slave conditions survived, or the continual deliberate breaking up of slave families that prevailed in the colonies.</p>
<p>From the earliest opening of the New World, African slaves were imported as forced labor to make possible the working of large plantations, which, as we have seen, would have been uneconomic if they had had to rely, as did other producers, on free and voluntary labor. In Latin America, from the sixteenth century on, Negro slavery was used for large sugar plantations concentrated in the West Indies and on the north coast of South America. It has been estimated that a total of 900,000 Negro slaves were imported into the New World in the sixteenth century, and two and three-quarter million in the seventeenth century.<a class="see-footnote" id="footnoteref2_5mi4tbj" title="Over the seventeenth and eighteenth centuries, only about one-fifteenth of the total Negro imports into the New World arrived in the territory of what is now the United States. That the slaves fared even worse in the Latin American colonies is seen by the far higher death rate there than in North America." href="#footnote2_5mi4tbj">2</a></p>
<p>Negroes came into use as slaves instead of the indigenous American Indians because: (a) the Negroes proved more adaptable to the onerous working conditions of slavery—enslaved Indians tended, as in the Caribbean, to die out; (b) it was easier to buy existing slaves from African chieftains than to enslave a race anew; and (c) of the great moral and spiritual influence of Father Bartolome de Las Casas in Spanish America, who in the mid-sixteenth century inveighed against the enslavement of the American Indians. Spanish consciences were never agitated over Negro slavery as they were over Indian; even Las Casas himself owned several Negro slaves for many years. Indeed, early in his career, Las Casas advocated the introduction of Negro slaves to relieve the pressure on the Indians, but he eventually came to repudiate the slavery of both races. In the seventeenth century two Spanish Jesuits, Alonzo de Sandoval and Pedro Claver, were conspicuous in trying to help the Negro slaves, but neither attacked the institution of Negro slavery as un-Christian. Undoubtedly one reason for the different treatment of the two races was the general conviction among Europeans of the inherent inferiority of the Negro race. Thus, the same Montesquieu who had scoffed at those Spaniards who called the American Indians barbarians, suggested that the African Negro was the embodiment of Aristotle’s “natural slave.” And even the environmental determinist David Hume suspected “the Negroes to be naturally inferior to the whites. There scarcely ever was a civilized nation of that complexion, nor even an individual, eminent either in action or speculation. No ingenious manufacturers amongst them, no arts, no sciences. On the other hand, the most rude and barbarian of the whites... have still something eminent about them.... Such a uniform and constant difference could not happen, in so many countries and ages, if nature had not made an original distinction between these breeds of men.”</p>
<p>Contrary to the views of those writers who maintain that Negroes and whites enjoyed equal rights as indentured servants in Virginia until the 1660s, after which the Negroes were gradually enslaved, evidence seems clear that from the beginning many Negroes were slaves and were treated far more harshly than were white indentured servants.<a class="see-footnote" id="footnoteref3_yu8jrxc" title="Cf. Winthrop D. Jordan, “Modern Tensions and the Origins of American Slavery,” Journal of Southern History (February 1962), pp. 17-30." href="#footnote3_yu8jrxc">3</a> No white man, for example, was ever enslaved unto perpetuity—lifetime service for the slave and for his descendants—in any English colony. The fact that there were no slave statutes in Virginia until the 1660s simply reflected the small number of Negroes in the colony before that date.<a class="see-footnote" id="footnoteref4_5fag5h4" title="Ibid. Jordan cites many evidences of Negro slavery—including court sentences, records of Negroes, executions of wills, comparative sale prices of Negro and white servants—dating from 1640, before which time the number of Negroes in Virginia was negligible." href="#footnote4_5fag5h4">4</a> From a very early date, owned Negroes were worked as field hands, whereas white bondservants were spared this onerous labor. And also from an early date, Negroes, in particular, were denied any right to bear arms. An especially striking illustration of this racism pervading Virginia from the earliest days was the harsh prohibition against any sexual union of the races. As early as 1630 a Virginia court ordered “Hugh Davis to be soundly whipped, before an assembly of Negroes and others for abusing himself to the dishonor of God and shame of Christians by defiling his body in lying with a Negro.” By the early 1660s the colonial government outlawed miscegenation and interracial fornication. When Virginia prohibited all interracial unions in 1691, the Assembly bitterly denounced miscegenation as “that abominable mixture and spurious issue.”<a class="see-footnote" id="footnoteref5_14ah7sf" title="“Spurious” in colonial legislation meant not simply illegitimate, but specifically the children of interracial unions." href="#footnote5_14ah7sf">5</a></p>
<p>Other regulations dating from this period and a little later included one that forbade any slave from leaving a plantation without a pass from his master; another decreed that conversion to Christianity would not set a slave free, a fact which violated a European tradition that only heathens, not Christians, might be reduced to slavery.</p>
<p>By the end of the seventeenth century, the growing Virginia colony had emerged from its tiny and precarious beginnings with a definite social structure. This society may be termed partly feudal. On the one hand, Virginia, with its abundance of new land, was spared the complete feudal mold of the English homeland. The Virginia Company was interested in promoting settlement, and most grantees (such as individual settlers and former indentured servants) were interested in settling the land for themselves. As a result, there developed a multitude of independent yeomen settlers, particularly in the less choice up-country lands. Also, the feudal quitrent system never took hold in Virginia. The settlers were charged quitrents by the colony or by the large grantees who, instead of allowing settlers to own the land or selling the land to them, insisted on charging and trying to collect annual quitrents as overlords of the land area. But while Virginia was able to avoid many crucial features of feudalism, it introduced an important feudal feature into its method of distributing land, especially the granting of large tracts of choice tidewater river land to favorite and wealthy planters. These large land grants would have early dissolved into ownership by the individual settlers were it not for the regime of forced labor, which made the large tobacco plantations profitable. Furthermore, the original “settlers,” those who brought the new land into use, were in this case the slaves and bondservants themselves, so it might well be said that the planters were in an arbitrary quasi-feudal relation to their land even apart from the large grants.</p>
<p>Temporary indentured service, both “voluntary” and compulsory, and the more permanent Negro slavery formed the base of exploited labor upon which was erected a structure of oligarchic rule by the large tobacco planters. The continuance of the large land tracts was also buttressed by the totally feudal laws of entail and primogeniture, which obtained, at least formally, in Virginia and most of the other colonies. Primogeniture compelled the undivided passing-on of land to the eldest son, and entail prevented the land from being alienated (even voluntarily) from the family domain. However, primogeniture did not exert its fully restrictive effect, for the planters generally managed to elude it and to divide their estate among their younger children as well. Hence, Virginia land partly dissolved into its natural division as the population grew. Primogeniture and entail never really took hold in Virginia, because the abundance of cheap land made <i>labor</i>—and hence the coerced supply of slaves—the key factor in production. More land could always be acquired; hence there was no need to restrict inheritance to the eldest son. Furthermore, the rapid exhaustion of tobacco land by the current methods of cultivation required the planters to be mobile, and to be ready to strike out after new plantations. The need for such mobility militated against the fixity of landed estates that marked the rigid feudal system of land inheritance prevailing in England. Overall, the wealth and status of Virginia’s large planters was far more precarious and less entrenched that were those of their landowning counterparts in England.</p>
<ul class="footnotes"><li class="footnote" id="footnote1_rcs88l9"><a class="footnote-label" href="#footnoteref1_rcs88l9">1.</a> Abbot E. Smith, <em>Colonists in Bondage</em>.</li>
<li class="footnote" id="footnote2_5mi4tbj"><a class="footnote-label" href="#footnoteref2_5mi4tbj">2.</a> Over the seventeenth and eighteenth centuries, only about one-fifteenth of the total Negro imports into the New World arrived in the territory of what is now the United States. That the slaves fared even worse in the Latin American colonies is seen by the far higher death rate there than in North America.</li>
<li class="footnote" id="footnote3_yu8jrxc"><a class="footnote-label" href="#footnoteref3_yu8jrxc">3.</a> <em>Cf.</em> Winthrop D. Jordan, “Modern Tensions and the Origins of American Slavery,” <em>Journal of Southern History</em> (February 1962), pp. 17-30.</li>
<li class="footnote" id="footnote4_5fag5h4"><a class="footnote-label" href="#footnoteref4_5fag5h4">4.</a> <em>Ibid</em>. Jordan cites many evidences of Negro slavery—including court sentences, records of Negroes, executions of wills, comparative sale prices of Negro and white servants—dating from 1640, before which time the number of Negroes in Virginia was negligible.</li>
<li class="footnote" id="footnote5_14ah7sf"><a class="footnote-label" href="#footnoteref5_14ah7sf">5.</a> “Spurious” in colonial legislation meant not simply illegitimate, but specifically the children of interracial unions.</li>
</ul>Murray N. RothbardThe Brutality of Slavery<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/slavery1.PNG?itok=t22KdYPA" width="240" alt="slavery1.PNG" />6449November 14, 2018 - 2:00 PMInterventionismAmerica Goes to Warhttps://mises.org/node/6620
<div class="editorial-preface"><p>[<a href="http://mises.org/document/6046/Great-Wars-and-Great-Leaders-A-Libertarian-Rebuttal"><em>Great Wars and Great Leaders: A Libertarian Rebuttal</em></a> (2010)]</p></div>
<p><br />With the onset of war in Europe, hostilities began in the North Atlantic which eventually provided the context — or rather, pretext — for America's participation. Immediately, questions of the rights of neutrals and belligerents leapt to the fore.</p>
<p>In 1909, an international conference had produced the Declaration of London, a statement of international law as it applied to war at sea. Since it was not ratified by all the signatories, the declaration never came into effect. However, once war started the United States inquired whether the belligerents were willing to abide by its stipulations. The Central Powers agreed, providing the entente did the same. The British agreed, with certain modifications, which effectively negated the declaration.<a class="see-footnote" id="footnoteref1_3o3pazz" title="Charles Callan Tansill, America Goes to War (Gloucester, Mass.: Peter Smith, 1963 [1938]),pp. 135–62." href="#footnote1_3o3pazz">1</a> British "modifications" included adding a large number of previously "free" items to the "conditional" contraband list and changing the status of key raw materials — most important of all, food — to "absolute" contraband, allegedly because they could be used by the German army.</p>
<p>The traditional understanding of international law on this point was expounded a decade and a half earlier by the British prime minister, Lord Salisbury:</p>
<blockquote><p>Foodstuffs, with a hostile destination, can be considered contraband of war only if they are supplies for the enemy's forces. It is not sufficient that they are capable of being so used; it must be shown that this was in fact their destination at the time of the seizure.<a class="see-footnote" id="footnoteref2_sl2mr3s" title="Ibid., p. 148." href="#footnote2_sl2mr3s">2</a></p></blockquote>
<p>That had also been the historical position of the US government. But in 1914 the British claimed the right to capture food as well as other previously "conditional contraband" destined not only for hostile but even for <em>neutral</em> ports, on the pretense that they would ultimately reach Germany and thus the German army. In reality, the aim was, as Churchill, First Lord of the Admiralty candidly admitted, to "starve the whole population — men, women, and children, old and young, wounded and sound — into submission."<a class="see-footnote" id="footnoteref3_l0mc4nk" title="Cited in H.C. Peterson, Propaganda for War: The Campaign against American Neutrality, 1914–1917 (Norman, Okla.: University of Oklahoma Press, 1939),p. 83. As Lord Devlin put it, the Admiralty's orders "were clear enough. All food consigned to Germany through neutral ports was to be captured, and all food consigned to Rotterdam was to be presumed consigned to Germany.… The British were determined on the starvation policy, whether or not it was lawful." Patrick Devlin, Too Proud to Fight: Woodrow Wilson's Neutrality (New York: Oxford University Press, 1975), pp. 193, 195." href="#footnote3_l0mc4nk">3</a></p>
<p>Britain now assumed "practically complete control over all neutral trade," in "flat violation of international laws."<a class="see-footnote" id="footnoteref4_18ps3th" title="Edwin Borchard and William Pooter Lage, Neutrality for the United States (New Haven, Conn.: Yale University Press, 1937), p. 61." href="#footnote4_18ps3th">4</a> A strong protest was prepared by State Department lawyers but never sent. Instead, Colonel House and Spring-Rice, the British ambassador, conferred and came up with an alternative. Denying that the new note was even a "formal protest," the United States politely requested that London reconsider its policy. The British expressed their appreciation for the American viewpoint, and quietly resolved to continue with their violations.<a class="see-footnote" id="footnoteref5_08z2mqh" title="Borchard and Lage, Neutrality, pp. 62–72. The US ambassador in London, Walter Hines Page, was already showing his colors. In October, he sent a telegram to the State Department, denouncing any American protests against British interference with neutral rights. "This is not a war in the sense we have hitherto used the word. It is a world-clash of systems of government, a struggle to the extermination of English civilization or of Prussian military autocracy. Precedents have gone to the scrap heap."" href="#footnote5_08z2mqh">5</a></p>
<p>In November 1914, the British Admiralty announced, supposedly in response to the discovery of a German ship unloading mines off the English coast, that henceforth the whole of the North Sea was a "military area," or war zone, which would be mined, and into which neutral ships proceeded "at their own risk." The British action was in blatant contravention of international law — including the Declaration of Paris, of 1856, which Britain had signed — among other reasons, because it conspicuously failed to meet the criteria for a legal blockade.<a class="see-footnote" id="footnoteref6_mf86ryh" title=" See Ralph Raico, "The Politics of Hunger: A Review," in Review of Austrian Economics, vol. 3 (1989), p. 254, and the sources cited. The article is included in the present volume." href="#footnote6_mf86ryh">6</a></p>
<p>The British moves meant that American commerce with Germany was effectively ended, as the United States became the arsenal of the entente. Bound now by financial as well as sentimental ties to England, much of American big business worked in one way or another for the Allied cause. The house of J.P. Morgan, which volunteered itself as coordinator of supplies for Britain, consulted regularly with the Wilson administration in its financial operations for the entente. The <em>Wall Street Journal</em> and other organs of the business elite were noisily pro-British at every turn, until we were finally brought into the European fray.<a class="see-footnote" id="footnoteref7_0q2lpen" title="Tansill, America Goes to War, pp. 132–33: "The Wall Street Journal was never troubled by a policy of 'editorial neutrality,' and as the war progressed it lost no opportunity to condemn the Central Powers in the most unmeasured terms."" href="#footnote7_0q2lpen">7</a></p>
<p>The United States refused to join the Scandinavian neutrals in objecting to the closing of the North Sea, nor did it send a protest of its own.<a class="see-footnote" id="footnoteref8_iry9oer" title="Ibid., pp. 177–78." href="#footnote8_iry9oer">8</a> However, when, in February, 1915, Germany declared the waters around the British Isles a war zone, in which enemy merchant ships were liable to be destroyed, Berlin was put on notice: if any American vessels or American lives should be lost through U-boat action, Germany would be held to a "strict accountability."<a class="see-footnote" id="footnoteref9_gz1gxo9" title="Robert M. La Follete, the progressive senator from Wisconsin, scathingly exposed Wilson's double standard in a speech on the Senate floor two days after Wilson's call for war. It is reprinted in the vital collection, Murray Polner and Thomas E. Woods, Jr., eds., We Who Dared to Say No to War: American Antiwar Writing from 1812 to Now (New York: Basic Books, 2008), pp. 123–32." href="#footnote9_gz1gxo9">9</a></p>
<p>In March, a British steamship, <em>Falaba,</em> carrying munitions and passengers, was torpedoed, resulting in the death of one American, among others. The ensuing note to Berlin entrenched Wilson's preposterous doctrine — that the United States had the right and duty to protect Americans sailing on ships flying a <em>belligerent</em> flag. Later, John Bassett Moore, for over 30 years professor of international law at Columbia, long-time member of the Hague Tribunal, and, after the war, a judge at the International Court of Justice, stated of this and of an equally absurd Wilsonian principle:</p>
<blockquote><p>what most decisively contributed to the involvement of the United States in the war was the assertion of a right to protect belligerent ships on which Americans saw fit to travel and the treatment of armed belligerent merchantmen as peaceful vessels. Both assumptions were contrary to reason and to settled law, and no other professed neutral advanced them.<a class="see-footnote" id="footnoteref10_06flbch" title="H.C. Peterson, Propaganda for War: The Campaign against American Neutrality, 1914–1917 (Norman, Okla.: University of Oklahoma Press, 1939),p. 112. Cf. Borchard and Lage, Neutrality, p. 136 (emphasis in original): "there was no precedent or legal warrant for a neutral to protect a belligerent ship from attack by its enemy because it happened to have on board American citizens. The exclusive jurisdiction of the country of the vessel's flag, to which all on board are subject, is an unchallengeable rule of law."" href="#footnote10_06flbch">10</a></p></blockquote>
<p>Wilson had placed America on a direct collision course with Germany.</p>
<p>On May 7, 1915, came the most famous incident in the North Atlantic war. The British liner <em>Lusitania</em> was sunk, with the loss of 1,195 lives, including 124 Americans, by far the largest number of American victims of German submarines before our entry into the war.<a class="see-footnote" id="footnoteref11_t2pthg6" title="On the possible involvement of Winston Churchill, First Lord of the Admiralty, in the genesis of this disaster, see "Rethinking Churchill," in the present volume." href="#footnote11_t2pthg6">11</a> There was outrage in the eastern seaboard press and throughout the American social elite and political class. Wilson was livid. A note was fired off to Berlin, reiterating the principle of "strict accountability," and concluding, ominously, that Germany</p>
<blockquote><p>will not expect the Government of the United States to omit any word or any act necessary to the performance of its sacred duty of maintaining the rights of the United States and its citizens and of safeguarding their free exercise and enjoyment.<a class="see-footnote" id="footnoteref12_ykj8487" title="Thomas G. Paterson, ed., Major Problems in American Foreign Policy. Documents and Essays, vol. 2, Since 1914, 2nd ed. (Lexington, Mass.: D. C. Heath, 1978), pp. 30–32." href="#footnote12_ykj8487">12</a></p></blockquote>
<p>At this time, the British released the Bryce Report on Belgian atrocities. A work of raw entente propaganda, though profiting from the name of the distinguished English writer, the report underscored the true nature of the unspeakable Hun.<a class="see-footnote" id="footnoteref13_hcno2du" title="On the fraudulence of the Bryce Report, see Read, Atrocity Propaganda, pp. 201–08; Peterson, Propaganda for War, pp. 51–70; and Knightley, The First Casualty, pp. 83–84, 107." href="#footnote13_hcno2du">13</a> Anglophiles everywhere were enraged. The Republican Party establishment raised the ante on Wilson, demanding firmer action. The great majority of Americans, who devoutly wished to avoid war, had no spokesmen within the leadership of either of the major parties. America was beginning to reap the benefits of our divinely appointed "bipartisan foreign policy."</p>
<p>In their reply to the State Department note, the Germans observed that submarine warfare was a reprisal for the illegal hunger blockade; that the <em>Lusitania</em> was carrying munitions of war; that it was registered as an auxiliary cruiser of the British Navy; that British merchant ships had been directed to ram or fire upon surfacing U-boats; and that the <em>Lusitania</em> had been armed.<a class="see-footnote" id="footnoteref14_nssmozz" title="Tansill, America Goes to War, p. 323. The German captain of the U-boat that sank the Lusitania afterwards pointed out that British captains of merchant ships had already been decorated or given bounties for ramming or attempting to ram surfaced submarines; see also Peterson, Propaganda for War, p. 114." href="#footnote14_nssmozz">14</a></p>
<p>Wilson's secretary of state, William Jennings Bryan, tried to reason with the president: "Germany has a right to prevent contraband going to the Allies, and a ship carrying contraband should not rely upon passengers to protect her from attack — it would be like putting women and children in front of an army." He reminded Wilson that a proposed American compromise, whereby Britain would allow food into Germany and the Germans would abandon submarine attacks on merchant ships, had been welcomed by Germany but rejected by England. Finally, Bryan blurted out: "Why be shocked by the drowning of a few people, if there is to be no objection to starving a nation?"<a class="see-footnote" id="footnoteref15_p38asmt" title="William Jennings Bryan and Mary Baird Bryan, The Memoirs of William Jennings Bryan (Philadelphia: John C. Winston, 1925), pp. 397–99; Tansill, America Goes to War, pp. 258–59." href="#footnote15_p38asmt">15</a> In June, convinced that the administration was headed for war, Bryan resigned.<a class="see-footnote" id="footnoteref16_2tpp6zm" title=" To my mind, Bryan's antiwar position and principled resignation more than make up for his views on evolution, despite H. L. Mencken's attempted demolition of Bryan in a well-known essay." href="#footnote16_2tpp6zm">16</a></p>
<p>The British blockade was taking a heavy toll, and in February 1916, Germany announced that enemy merchant ships, except passenger liners, would be treated as auxiliary cruisers, liable to be attacked without warning. The State Department countered with a declaration that, in the absence of "conclusive evidence of aggressive purpose" in each individual case, armed belligerent merchant ships enjoyed all the immunities of peaceful vessels.<a class="see-footnote" id="footnoteref17_yxi71xk" title="Edwin Borchard and William Pooter Lage, Neutrality for the United States (New Haven, Conn.: Yale University Press, 1937),pp. 122–24. John Bassett Moore was scathing in his denunciation of Wilson's new doctrine, that an armed merchant ship enjoyed all the rights of an unarmed one. Citing precedents going back to Supreme Court Justice John Marshall, Moore stated that: "By the position actually taken, the United States was committed, while professing to be a neutral, to maintain a belligerent position." Alex Mathews Arnett,Claude Kitchin and the Wilson War Policies (New York: Russell and Russell, 1971 [1937]), pp. 157–58. " href="#footnote17_yxi71xk">17</a> Wilson rejected congressional calls at least to issue a warning to Americans traveling on armed merchant ships that they did so at their own risk. During the Mexican civil war, he had cautioned Americans against traveling in Mexico.<a class="see-footnote" id="footnoteref18_q276joi" title="In fact, during the Mexican conflict, Wilson had prohibited outright the shipment of arms to Mexico. As late as August, 1913, he declared: "I shall follow the best practice of nations in this matter of neutrality by forbidding the exportation of arms or munitions of war of any kind from the United States to any part of the Republic of Mexico." Tansill, America Goes to War, p. 64." href="#footnote18_q276joi">18</a> But now Wilson stubbornly refused.</p>
<p>Attention shifted to the sea war once more when a French passenger ship, the <em>Sussex,</em> bearing no flag or markings, was sunk by a U-boat, and several Americans injured. A harsh American protest elicited the so-called <em>Sussex</em> pledge from a German government anxious to avoid a break: Germany would cease attacking without warning enemy merchant ships found in the war zone. This was made explicitly conditioned, however, on the presumption that "the Government of the United States will now demand and insist that the British Government shall forthwith observe the rules of international law." In turn, Washington curtly informed the Germans that their own responsibility was "absolute," in no way contingent on the conduct of any other power.<a class="see-footnote" id="footnoteref19_ye9e76e" title="Ibid., pp. 511–15." href="#footnote19_ye9e76e">19</a> As Borchard and Lage commented:</p>
<blockquote><p>This persistent refusal of President Wilson to see that there was a relation between the British irregularities and the German submarine warfare is probably the crux of the American involvement. The position taken is obviously unsustainable, for it is a neutral's duty to hold the scales even and to favor neither side.<a class="see-footnote" id="footnoteref20_oizg3ew" title="Borchard and Lage, Neutrality, p. 168." href="#footnote20_oizg3ew">20</a></p></blockquote>
<p>But in reality, the American leaders were anything but neutral.</p>
<p>Anglophile does not begin to describe our ambassador to London, Walter Hines Page, who, in his abject eagerness to please his hosts, displayed all the qualities of a good English spaniel. Afterwards, Edward Grey wrote of Page, "From the first he considered that the United States could be brought into the war early on the side of the Allies if the issue were rightly presented to it and a great appeal made by the President."</p>
<p>"Page's advice and suggestion were of the greatest value in warning us when to be careful or encouraging us when we could safely be firm." Grey recalled in particular one incident, when Washington contested the right of the Royal Navy to stop American shipments to neutral ports. Page came to him with the message. "'I am instructed,' he said, 'to read this despatch to you.' He read and I listened. He then added: 'I have now read the despatch, but I do not agree with it; let us consider how it should be answered.'" Grey, of course, regarded Page's conduct as "the highest type of patriotism."<a class="see-footnote" id="footnoteref21_y50mrhi" title="Edward Grey, (Viscount Grey of Fallodon), Twenty-Five Years. 1892–1916 (New York: Frederick A. Stokes, 1925), pp. 101–02, 108–11." href="#footnote21_y50mrhi">21</a></p>
<p>Page's attitude was not out of place among his superiors in Washington. In his memoirs, Bryan's successor as Secretary of State, Robert Lansing, described how, after the <em>Lusitania</em> episode, Britain "continued her policy of tightening the blockade and closing every possible channel by which articles could find their way to Germany," committing ever more flagrant violations of our neutral rights. In response to State Department notes questioning these policies, the British never gave the slightest satisfaction. They knew they didn't have to. For, as Lansing confessed:</p>
<blockquote><p>in dealing with the British Government there was always in my mind the conviction that we would ultimately become an ally of Great Britain and that it would not do, therefore, to let our controversies reach a point where diplomatic correspondence gave place to action.</p></blockquote>
<p>Once joining the British, "we would presumably wish to adopt some of the policies and practices, which the British adopted," for then we, too, would be aiming to "destroy the morale of the German people by an economic isolation, which would cause them to lack the very necessaries of life." With astounding candor, Lansing disclosed that the years-long exchange of notes with Britain had been a sham:</p>
<blockquote><p>everything was submerged in verbiage. It was done with deliberate purpose. It insured the continuance of the controversies and left the questions unsettled, which was necessary in order to leave this country free to act and even act illegally when it entered the war.<a class="see-footnote" id="footnoteref22_h6tzwpt" title="Robert Lansing, War Memoirs (Indianapolis: Bobbs–Merrill, 1935), pp. 127–28." href="#footnote22_h6tzwpt">22</a></p></blockquote>
<p>Colonel House, too, was distinctly unneutral. Breaking with all previous American practice, as well as with international law, House maintained that it was the <em>character</em> of the foreign government that must decide which belligerent a "neutral" United States should favor. When in September 1914, the Austrian ambassador complained to House about the British attempt to starve the peoples of Central Europe — "Germany faces famine if the war continues" — House smugly reported the interview to Wilson: "He forgot to add that England is not exercising her power in an objectionable way, for it is controlled by a democracy."<a class="see-footnote" id="footnoteref23_763t02z" title="Charles Seymour, ed., The Intimate Papers of Colonel House (Boston: Houghton Mifflin, 1926), vol. 1, p. 323." href="#footnote23_763t02z">23</a></p>
<p>In their president, Page, Lansing, and House found a man whose heart beat as theirs. Wilson confided to his private secretary his deep belief: "England is fighting our fight and you may well understand that I shall not, in the present state of the world's affairs, place obstacles in her way.… I will not take any action to embarrass England when she is fighting for her life and the life of the world."<a class="see-footnote" id="footnoteref24_6w5k6sq" title="Joseph P. Tumulty, Woodrow Wilson as I Know Him (New York: Doubleday, Page, 1921), p. 231. Proofs such as these that our leaders had shamelessly lied in their protestations of neutrality were published in the 1920s and '30s. This explains the passion of the anti-war movement before the Second World War much better than the imaginary "Nazi sympathies" or "anti-Semitism" nowadays invoked by ignorant interventionist writers. As Susan A. Brewer writes in Why America Fights: Patriotism and War Propaganda from the Philippines to Iraq (New York: Oxford University Press 2009), p. 280, "The Committee on Public Information presented the war as a noble crusade fought for democracy against demonized Germans. Such a portrayal was overturned by unfulfilled war aims overseas, the abuse of civil liberties at home, and revelations of false atrocity propaganda. In the years that followed Americans expressed distrust of government propaganda and military intervention in what they considered to be other people's wars." This helps account for the appearance from time to time of debunking works of popular revisionism by authors infuriated by the facts they discovered, such as C. Hartley Grattan, Why We Fought (Indianapolis: Bobbs–Merrill, 1969 [1929]); Walter Millis, Road to War: America 1914–1917 (Boston: Houghton Mifflin, 1935); and later Charles L. Mee, Jr., The End of Order: Versailles 1919 (New York: E. P. Dutton, 1980); and Walter Karp's invaluable, The Politics of War: The Story of Two Wars which Altered Forever the Political Life of the American Republic (1890–1920) (New York: Harper and Row, 1979). " href="#footnote24_6w5k6sq">24</a></p>
<p>Meanwhile, Colonel House had discovered a means to put the impending American entry into war to good use — by furthering the cause of democracy and "turning the world into the right paths." The author of <em>Philip Dru: Administrator</em> revealed his vision to the president who "knew that God had chosen him to do great things."<a class="see-footnote" id="footnoteref25_xydlscy" title="Walter A. McDougall, Promised Land, Crusader State: The American Encounter with the World since 1776 (Boston/New York: Houghton Mifflin, 1997),p. 127." href="#footnote25_xydlscy">25</a> The ordeal by fire would be a hard one, but "no matter what sacrifices we make, the end will justify them." After this final battle against the forces of reaction, the United States would join with other democracies to uphold the peace of the world and freedom on both land and sea, forever. To Wilson, House spoke words of seduction: "This is the part I think you are destined to play in this world tragedy, and it is the noblest part that has ever come to a son of man. This country will follow you along such a path, no matter what the cost may be."<a class="see-footnote" id="footnoteref26_bj8ieq8" title="Seymour, The Intimate Papers of Colonel House, vol. 1, p. 470; vol. 2, p. 92." href="#footnote26_bj8ieq8">26</a></p>
<p>As the British leaders had planned and hoped, the Germans were starving. On January 31, 1917, Germany announced that the next day it would begin unrestricted submarine warfare. Wilson was stunned, but it is difficult to see why. This is what the Germans had been implicitly threatening for years, if nothing was done to end the illegal British blockade.</p>
<p>The United States severed diplomatic relations with Berlin. The president decided that American merchant ships were to be armed and defended by American sailors, thus placing munitions and other contraband sailing to Britain under the protection of the US Navy. When 11 senators, headed by Robert La Follette, filibustered the authorization bill, a livid Wilson denounced them: "A little group of willful men, representing no opinion but their own, have rendered the great Government of the United States helpless and contemptible." Wilson hesitated to act, however, well aware that the defiant senators represented far more than just themselves.</p>
<p>There were troubling reports — from the standpoint of the war party in Washington — like that from William Durant, head of General Motors. Durant telephoned Colonel House, entreating him to stop the rush to war; he had just returned from the West and met only one man between New York and California who wanted war.<a class="see-footnote" id="footnoteref27_27rx3kh" title="Seymour, The Intimate Papers of Colonel House, vol. 2, p. 448." href="#footnote27_27rx3kh">27</a> But opinion began to shift and gave Wilson the opening he needed. A telegram, sent by Alfred Zimmermann of the German Foreign Office to the Mexican government, had been intercepted by British intelligence and forwarded to Washington. Zimmermann proposed a military alliance with Mexico <em>in case</em> war broke out between the United States and Germany. Mexico was promised the American Southwest, including Texas. The telegram was released to the press.</p>
<p>For the first time backed by popular feeling, Wilson authorized the arming of American merchant ships. In mid-March, a number of freighters entering the declared submarine zone were sunk, and the president called Congress into special session for April 2.</p>
<p>Given his war speech, Woodrow Wilson may be seen as the anti-Washington. George Washington, in his Farewell Address, advised that "the great rule of conduct for us in regard to foreign nations is, in extending our commercial relations, to have with them as little <em>political</em> connection as possible" (emphasis in original). Wilson was also the anti-John Quincy Adams. Adams, author of the Monroe Doctrine, declared that the United States of America "does not go abroad in search of monsters to destroy." Discarding this whole tradition, Wilson put forward the vision of an America that was entangled in countless political connections with foreign powers and on perpetual patrol for monsters to destroy. Our purpose in going to war was</p>
<blockquote><p>to fight thus for the ultimate peace of the world and for the liberation of its peoples, the German people included: for the rights of nations great and small and the privilege of men everywhere to choose their way of life and of obedience. The world must be made safe for democracy … [we fight] for a universal dominion of right by such a concert of free peoples as shall bring peace and safety to all nations and make the world at last free.<a class="see-footnote" id="footnoteref28_2b7xy28" title="The Papers of Woodrow Wilson, January 24-April 6, 1917, Arthur S. Link, ed. (Princeton, N.J.: Princeton University Press, 1983), vol. 41, pp. 525–27." href="#footnote28_2b7xy28">28</a></p></blockquote>
<p>Wilson was answered in the Senate by Robert La Follette, and in the House by the Democratic leader Claude Kitchin, to no avail.<a class="see-footnote" id="footnoteref29_sknf0rr" title="See Robert M. La Follette, "Speech on the Declaration of War against Germany," in Arthur A. Ekirch, Jr., ed., Voices in Dissent: An Anthology of Individualist Thought in the United States (New York: Citadel Press, 1964), pp. 211–22; and Arnett, Claude Kitchin, pp. 227–35." href="#footnote29_sknf0rr">29</a> In Congress, near-hysteria reigned, as both chambers approved the declaration of war by wide margins. The political class and its associates in the press, the universities, and the pulpits ardently seconded the plunge into world war and the abandonment of the America that was. As for the population at large, it acquiesced, as one historian has remarked, out of general boredom with peace, the habit of obedience to its rulers, and a highly unrealistic notion of the consequences of America's taking up arms.<a class="see-footnote" id="footnoteref30_rtft5c3" title="Otis L. Graham, Jr., The Great Campaigns: Reform and War in America, 1900–1928 (Malabar, Fla.: Robert E. Krieger, 1987), p. 89." href="#footnote30_rtft5c3">30</a></p>
<p>Three times in his war message, Wilson referred to the need to fight without passion or vindictiveness — rather a professor's idea of what waging war entailed. The reality for America would be quite different.</p>
<div class="article-author"><p>This article is excerpted from the chapter "World War I: The Turning Point" in <a href="http://mises.org/document/6046/Great-Wars-and-Great-Leaders-A-Libertarian-Rebuttal"><em>Great Wars and Great Leaders: A Libertarian Rebuttal</em></a> (2010). The chapter is a much expanded version of an essay that originally appeared in <em><a href="http://mises.org/document/6746/The-Costs-of-War-Americas-Pyrrhic-Victories">The Costs of War: America's Pyrrhic Victories</a></em> (2001).</p></div>
<ul class="footnotes"><li class="footnote" id="footnote1_3o3pazz"><a class="footnote-label" href="#footnoteref1_3o3pazz">1.</a> Charles Callan Tansill, <em>America Goes to War</em> (Gloucester, Mass.: Peter Smith, 1963 [1938]),pp. 135–62.</li>
<li class="footnote" id="footnote2_sl2mr3s"><a class="footnote-label" href="#footnoteref2_sl2mr3s">2.</a> Ibid., p. 148.</li>
<li class="footnote" id="footnote3_l0mc4nk"><a class="footnote-label" href="#footnoteref3_l0mc4nk">3.</a> Cited in H.C. Peterson, <em>Propaganda for War: The Campaign against American Neutrality, 1914–1917</em> (Norman, Okla.: University of Oklahoma Press, 1939),p. 83. As Lord Devlin put it, the Admiralty's orders "were clear enough. All food consigned to Germany through neutral ports was to be captured, and all food consigned to Rotterdam was to be presumed consigned to Germany.… The British were determined on the starvation policy, whether or not it was lawful." Patrick Devlin, <em>Too Proud to Fight: Woodrow Wilson's Neutrality</em> (New York: Oxford University Press, 1975), pp. 193, 195.</li>
<li class="footnote" id="footnote4_18ps3th"><a class="footnote-label" href="#footnoteref4_18ps3th">4.</a> Edwin Borchard and William Pooter Lage, <em>Neutrality for the United States</em> (New Haven, Conn.: Yale University Press, 1937), p. 61.</li>
<li class="footnote" id="footnote5_08z2mqh"><a class="footnote-label" href="#footnoteref5_08z2mqh">5.</a> Borchard and Lage, <em>Neutrality</em>, pp. 62–72. The US ambassador in London, Walter Hines Page, was already showing his colors. In October, he sent a telegram to the State Department, denouncing any American protests against British interference with neutral rights. "This is not a war in the sense we have hitherto used the word. It is a world-clash of systems of government, a struggle to the extermination of English civilization or of Prussian military autocracy. Precedents have gone to the scrap heap."</li>
<li class="footnote" id="footnote6_mf86ryh"><a class="footnote-label" href="#footnoteref6_mf86ryh">6.</a> See Ralph Raico, "The Politics of Hunger: A Review," in <em>Review of Austrian Economics</em>, vol. 3 (1989), p. 254, and the sources cited. The article is included in the present volume.</li>
<li class="footnote" id="footnote7_0q2lpen"><a class="footnote-label" href="#footnoteref7_0q2lpen">7.</a> Tansill, <em>America Goes to War</em>, pp. 132–33: "The Wall Street Journal was never troubled by a policy of 'editorial neutrality,' and as the war progressed it lost no opportunity to condemn the Central Powers in the most unmeasured terms."</li>
<li class="footnote" id="footnote8_iry9oer"><a class="footnote-label" href="#footnoteref8_iry9oer">8.</a> Ibid., pp. 177–78.</li>
<li class="footnote" id="footnote9_gz1gxo9"><a class="footnote-label" href="#footnoteref9_gz1gxo9">9.</a> Robert M. La Follete, the progressive senator from Wisconsin, scathingly exposed Wilson's double standard in a speech on the Senate floor two days after Wilson's call for war. It is reprinted in the vital collection, Murray Polner and Thomas E. Woods, Jr., eds., <em>We Who Dared to Say No to War: American Antiwar Writing from 1812 to Now</em> (New York: Basic Books, 2008), pp. 123–32.</li>
<li class="footnote" id="footnote10_06flbch"><a class="footnote-label" href="#footnoteref10_06flbch">10.</a> H.C. Peterson, <em>Propaganda for War: The Campaign against American Neutrality, 1914–1917</em> (Norman, Okla.: University of Oklahoma Press, 1939),p. 112. Cf. Borchard and Lage, <em>Neutrality</em>, p. 136 (emphasis in original): "there was no precedent or legal warrant for a neutral to protect a <em>belligerent</em> ship from attack by its enemy because it happened to have on board American citizens. The exclusive jurisdiction of the country of the vessel's flag, to which all on board are subject, is an unchallengeable rule of law."</li>
<li class="footnote" id="footnote11_t2pthg6"><a class="footnote-label" href="#footnoteref11_t2pthg6">11.</a> On the possible involvement of Winston Churchill, First Lord of the Admiralty, in the genesis of this disaster, see "Rethinking Churchill," in the present volume.</li>
<li class="footnote" id="footnote12_ykj8487"><a class="footnote-label" href="#footnoteref12_ykj8487">12.</a> Thomas G. Paterson, ed., <em>Major Problems in American Foreign Policy. Documents and Essays</em>, vol. 2, <em>Since 1914</em>, 2nd ed. (Lexington, Mass.: D. C. Heath, 1978), pp. 30–32.</li>
<li class="footnote" id="footnote13_hcno2du"><a class="footnote-label" href="#footnoteref13_hcno2du">13.</a> On the fraudulence of the Bryce Report, see Read, <em>Atrocity Propaganda</em>, pp. 201–08; Peterson, <em>Propaganda for War</em>, pp. 51–70; and Knightley, <em>The First Casualty</em>, pp. 83–84, 107.</li>
<li class="footnote" id="footnote14_nssmozz"><a class="footnote-label" href="#footnoteref14_nssmozz">14.</a> Tansill, <em>America Goes to War</em>, p. 323. The German captain of the U-boat that sank the <em>Lusitania</em> afterwards pointed out that British captains of merchant ships had already been decorated or given bounties for ramming or attempting to ram surfaced submarines; see also Peterson, <em>Propaganda for War</em>, p. 114.</li>
<li class="footnote" id="footnote15_p38asmt"><a class="footnote-label" href="#footnoteref15_p38asmt">15.</a> William Jennings Bryan and Mary Baird Bryan, <em>The Memoirs of William Jennings Bryan</em> (Philadelphia: John C. Winston, 1925), pp. 397–99; Tansill, <em>America Goes to War</em>, pp. 258–59.</li>
<li class="footnote" id="footnote16_2tpp6zm"><a class="footnote-label" href="#footnoteref16_2tpp6zm">16.</a> To my mind, Bryan's antiwar position and principled resignation more than make up for his views on evolution, despite H. L. Mencken's attempted demolition of Bryan in a well-known essay.</li>
<li class="footnote" id="footnote17_yxi71xk"><a class="footnote-label" href="#footnoteref17_yxi71xk">17.</a> Edwin Borchard and William Pooter Lage, <em>Neutrality for the United States</em> (New Haven, Conn.: Yale University Press, 1937),pp. 122–24. John Bassett Moore was scathing in his denunciation of Wilson's new doctrine, that an armed merchant ship enjoyed all the rights of an unarmed one. Citing precedents going back to Supreme Court Justice John Marshall, Moore stated that: "By the position actually taken, the United States was committed, while professing to be a neutral, to maintain a belligerent position." Alex Mathews Arnett,<em>Claude Kitchin and the Wilson War Policies</em> (New York: Russell and Russell, 1971 [1937]), pp. 157–58. </li>
<li class="footnote" id="footnote18_q276joi"><a class="footnote-label" href="#footnoteref18_q276joi">18.</a> In fact, during the Mexican conflict, Wilson had prohibited outright the shipment of arms to Mexico. As late as August, 1913, he declared: "I shall follow the best practice of nations in this matter of neutrality by forbidding the exportation of arms or munitions of war of any kind from the United States to any part of the Republic of Mexico." Tansill, <em>America Goes to War</em>, p. 64.</li>
<li class="footnote" id="footnote19_ye9e76e"><a class="footnote-label" href="#footnoteref19_ye9e76e">19.</a> Ibid., pp. 511–15.</li>
<li class="footnote" id="footnote20_oizg3ew"><a class="footnote-label" href="#footnoteref20_oizg3ew">20.</a> Borchard and Lage, <em>Neutrality</em>, p. 168.</li>
<li class="footnote" id="footnote21_y50mrhi"><a class="footnote-label" href="#footnoteref21_y50mrhi">21.</a> Edward Grey, (Viscount Grey of Fallodon), <em>Twenty-Five Years. 1892–1916</em> (New York: Frederick A. Stokes, 1925), pp. 101–02, 108–11.</li>
<li class="footnote" id="footnote22_h6tzwpt"><a class="footnote-label" href="#footnoteref22_h6tzwpt">22.</a> Robert Lansing, <em>War Memoirs</em> (Indianapolis: Bobbs–Merrill, 1935), pp. 127–28.</li>
<li class="footnote" id="footnote23_763t02z"><a class="footnote-label" href="#footnoteref23_763t02z">23.</a> Charles Seymour, ed., <em>The Intimate Papers of Colonel House</em> (Boston: Houghton Mifflin, 1926), vol. 1, p. 323.</li>
<li class="footnote" id="footnote24_6w5k6sq"><a class="footnote-label" href="#footnoteref24_6w5k6sq">24.</a> Joseph P. Tumulty, <em>Woodrow Wilson as I Know Him</em> (New York: Doubleday, Page, 1921), p. 231. Proofs such as these that our leaders had shamelessly lied in their protestations of neutrality were published in the 1920s and '30s. This explains the passion of the anti-war movement before the Second World War much better than the imaginary "Nazi sympathies" or "anti-Semitism" nowadays invoked by ignorant interventionist writers. As Susan A. Brewer writes in <em>Why America Fights: Patriotism and War Propaganda from the Philippines to Iraq</em> (New York: Oxford University Press 2009), p. 280, "The Committee on Public Information presented the war as a noble crusade fought for democracy against demonized Germans. Such a portrayal was overturned by unfulfilled war aims overseas, the abuse of civil liberties at home, and revelations of false atrocity propaganda. In the years that followed Americans expressed distrust of government propaganda and military intervention in what they considered to be other people's wars." This helps account for the appearance from time to time of debunking works of popular revisionism by authors infuriated by the facts they discovered, such as C. Hartley Grattan, <em>Why We Fought</em> (Indianapolis: Bobbs–Merrill, 1969 [1929]); Walter Millis, <em>Road to War: America 1914–1917</em> (Boston: Houghton Mifflin, 1935); and later Charles L. Mee, Jr., <em>The End of Order: Versailles 1919 </em> (New York: E. P. Dutton, 1980); and Walter Karp's invaluable, <em>The Politics of War: The Story of Two Wars which Altered Forever the Political Life of the American Republic (1890–1920)</em> (New York: Harper and Row, 1979). </li>
<li class="footnote" id="footnote25_xydlscy"><a class="footnote-label" href="#footnoteref25_xydlscy">25.</a> Walter A. McDougall, <em>Promised Land, Crusader State: The American Encounter with the World since 1776</em> (Boston/New York: Houghton Mifflin, 1997),p. 127.</li>
<li class="footnote" id="footnote26_bj8ieq8"><a class="footnote-label" href="#footnoteref26_bj8ieq8">26.</a> Seymour, <em>The Intimate Papers of Colonel House</em>, vol. 1, p. 470; vol. 2, p. 92.</li>
<li class="footnote" id="footnote27_27rx3kh"><a class="footnote-label" href="#footnoteref27_27rx3kh">27.</a> Seymour, <em>The Intimate Papers of Colonel House</em>, vol. 2, p. 448.</li>
<li class="footnote" id="footnote28_2b7xy28"><a class="footnote-label" href="#footnoteref28_2b7xy28">28.</a> <em>The Papers of Woodrow Wilson</em>, January 24-April 6, 1917, Arthur S. Link, ed. (Princeton, N.J.: Princeton University Press, 1983), vol. 41, pp. 525–27.</li>
<li class="footnote" id="footnote29_sknf0rr"><a class="footnote-label" href="#footnoteref29_sknf0rr">29.</a> See Robert M. La Follette, "Speech on the Declaration of War against Germany," in Arthur A. Ekirch, Jr., ed., <em>Voices in Dissent: An Anthology of Individualist Thought in the United States</em> (New York: Citadel Press, 1964), pp. 211–22; and Arnett, Claude Kitchin, pp. 227–35.</li>
<li class="footnote" id="footnote30_rtft5c3"><a class="footnote-label" href="#footnoteref30_rtft5c3">30.</a> Otis L. Graham, Jr., <em>The Great Campaigns: Reform and War in America, 1900–1928</em> (Malabar, Fla.: Robert E. Krieger, 1987), p. 89.</li>
</ul>Ralph RaicoAmerica Goes to War<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/soldiers2.PNG?itok=Syl3ZFZV" width="240" alt="soldiers2.PNG" />6620November 10, 2018 - 2:00 PMInterventionismCannabis Victories!https://mises.org/node/44645
<p>There were three important victories related to cannabis yesterday, including the states of Michigan, Missouri and Utah which are far from being lefty hippy states! Only in North Dakota did the ballot measure fail.</p>
<p>Michigan passed full adult recreational legalization of cannabis by a 54-46 margin making it the 10th state to do so.</p>
<p>Missouri became the 31st state to legalize medical marijuana use. There were three cannabis amendments on the ballot and the one that passed will tax marijuana sales at just 4 percent. Of the three, it was the only proposal that allowed for home-growing of cannabis so it would seem that it was the most radical of the three choices.</p>
<p>Utah became the 32nd state to legalize medical marijuana use even though the Church of Jesus Christ of Latter-day Saints campaigned against it!</p>
<p>Only in North Dakota did voters strike down Measure 3 which would have been the nation’s best recreational law, allowing citizens to grow, consume and possess as much cannabis as they want, without any government intervention.</p>
<p>Also the Democrats took control of the State Senate in New York and with Governor Cuomo flipping to the right side it looks cannabis legalization will be up for solid debate during the next session of the legislature.</p>
<p>Given that the FDA has given its first approval of a cannabis drug product and that Canada has legalized, I would say that this ideological battle has been won!</p>
<p>UPDATE: America’s biggest meathead, Pete Sessions (R-Texas), was defeated. Sessions has been blocking cannabis reform legislation in Congress and will be replaced by a Democrat. His opponent is a former NFL football player Colin Allred. Trump and Pence campaign for Session. I sent Allred's campaign a small donation and I think its the first time in history that a campaign that I contributed actually won! </p>
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Mark ThorntonCannabis Victories!<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/inevitable.jpeg?itok=dupPtpFW" width="240" alt="inevitable.jpeg" />44645November 7, 2018 - 10:30 AMInterventionism "Come What, Come Will!" Richard Overton, Libertarian Levellerhttps://mises.org/node/18516
<h3>Volume 4, Number 4 (1980)</h3>
<p>The Levellers were a group of politically active soldiers and civilians whose organized efforts during the English Civil War (1642–1649) were based on their beliefs in individual liberty. John Lilburne was their popularly recognized leader, but it is in the works of his associate, Richard Overton, that we find the most consistent expression of their incipient libertarianism. In this essay, we will make first a preliminary survey of the libertarian aspects of the Leveller movement, and then a more detailed examination of the pamphleteering career of Richard Overton.</p>
<p>From our vantage point in the twentieth century, not all Leveller think­ing is consonant with modern libertarianism, but it is probably a fair state­ment to say that the Leveller organization was the first modern political movement to embrace the principles of individual liberty to any great ex­tent. One modern historian of the movement, H. N. Brailsford, has dis­tinguished three basic ideas in the web of Leveller thought. First, the Levellers were quite concerned with the realm of each person's individuality or self-propriety, as they termed it. Although they never explicitly used the term self-ownership, self-propriety had the same connotation: the right of each and every person to control his or her own body and soul free of coercive molestation. During a period of bitter religious strife, the Levellers stressed religious freedom — the right of each person to worship ( or not to worship) as he or she chose. They also emphasized the right of the individ­ual to decide whether or not to bear arms; in short, the right to be free of conscription. Secondly, the Levellers affirmed the individual's right of asso­ciation with other like-minded people, whether it be a voluntary church or a group of people printing their own books and pamphlets without govern­ment censorship. This also included the right of combination for political ends, which at that time meant the writing and distribution of petitions and all the meetings and publicity that this entailed. Their third basic idea involved equality of all before the law, both of rich and poor, noble and simple; and, particularly and most importantly, the equality of all in the sphere of political power. The Levellers advocated the abolition of all class privileges and government grants of monopoly, the simplification of legal procedure, and a more widespread form of manhood suffrage. They also called for an end to tithes, excise duties, customs duties, imprisonment for debt, and conscription.<a class="see-footnote" id="footnoteref1_97spnb0" title="H. N. Brailsford, The Levellers and the English Revolution (London: Cresset Press, 1961), p. 418. There is a wide disparity in secoridary, historical interpretations of the Leveller movement. Probably the two most individualistic interpretations of the Levellers are this book by Brailsford and one by C. B. Macpherson, Political Theory of Possessive In­dividualism (Oxford: Clarendon Press, 1962)." href="#footnote1_97spnb0">1</a></p>
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<p>The Levellers were not socialists or left-wing supporters of Cromwell, but rather individualists.<a class="see-footnote" id="footnoteref2_tu4xn3g" title="Howard Shaw, The Levellers (London: Longmans Green and Co., 1968), p. 102. See also Brailsford, The Levellers and the English Revolution, pp. 549-550." href="#footnote2_tu4xn3g">2</a> Following the Anabaptist tradition, they disowned coercion of all innocent people and affirmed a position of broad religious tolerance.<a class="see-footnote" id="footnoteref3_esxm776" title="Brailsford, The Levellers and the English Revolution, pp. 379-380." href="#footnote3_esxm776">3</a> They were the first political movement outside of the Netherlands to stand for unqualified toleration, including acceptance of Jews and Catholics in England. Nor did they wish to charge the state with the responsibility for enforcing personal morality. No Leveller petition ever included among the reforms demanded the repression of swearing and drinking, or the more strict observance of the Sabbath, or the banishment of fiddlers from the taverns. The Levellers made the final breach with theocracy when they modified their appeal for religious toleration to a plea for the complete divorce between religion and the state. Theirs is the dis­tinction of being the first movement in the modern world to call for a secular republic.<a class="see-footnote" id="footnoteref4_r7p0syi" title="Ibid. p. 550." href="#footnote4_r7p0syi">4</a></p>
<p>Although they were accused of "setting up an utopian anarchy of the promiscuous multitude," they were not outright anarchists.<a class="see-footnote" id="footnoteref5_co4aklp" title="D. B. Robertson, The Religious Foundations of Leveller Democracy (New York: Kings Crown Press, 1951), p. 74." href="#footnote5_co4aklp">5</a> Towards the end of their existence as an organized political party, Walwyn, one of their four recognized leaders, wrote:</p>
<p class="indent2">That we are for Government and against Popular Confusion. we con­ceive all our actions declare, when rightly considered, our aim having been all along to reduce it as near as might be to perfection, and cer­tainly we know very well that depravity and corruption of man's heart is such that there could be no living without it; and that though Tyranny is excessively bad, yet of the two extremes, Confusion is the worst: Tis somewhat a strange consequence to infer that because we have labored so earnestly for a good Government, therefore we would have none at all; Because we would have the dead and exorbitant Branches pruned, and better sciens grafted, therefore we would pluck the Tree up by the roots.<a class="see-footnote" id="footnoteref6_znpj9i7" title="Richard Overton, A Manifestation, in Don M. Wolfe, ed., Leveller Manifestoes of the Puritan Revolution (New York: Thomas Nelson and Sons, 1944), p. 391. This is one of several collections of Leveller documents which are indispensable to the study of the general movement. Others include: William Haller and Godfrey Davies, eds., The Leveller Tracts, 1647-1653 (New York: Columbia University Press, 1944); William Haller, ed., Tracts on Liberty in the Puritan Revolution, 1638-1647, 3 vols. (New York: Columbia University Press, 1934); and A. S. P. Woodhouse, ed., Puritianism and Liberty Being the Army Debates, 1647-9, Clarke Manuscripts (Chicago: University of Chicago Press, 1951)." href="#footnote6_znpj9i7">6</a></p>
<p>Yet they recognized that no man could be bound, in a political sense, but by his own consent.<a class="see-footnote" id="footnoteref7_mbcqt14" title="Robertson, Religious Foundations, p. 73." href="#footnote7_mbcqt14">7</a> They admitted of no sovereignty anywhere except in the individual. The Levellers "seriously accepted the possibility of any man re­fusing obedience to commands incompatible with his idea of reason or jus­tice. This may appear anarchic, but to them it was the ultimate guarantee of liberty."<a class="see-footnote" id="footnoteref8_qwz9re8" title="Perez Zagorin, A History of Political Thought in the English Revolution (London: Routledge and Kegan Paul, 1954), p. 41." href="#footnote8_qwz9re8">8</a></p>
<p>In the context of the English Civil War, the Levellers believed that resis­tance to King Charles I and his party was not resistance to "magistracy", as government was called, but rather resistance to tyranny. Overton wrote that tyranny could never be true magistracy and that every man was duty bound to endeavor to bring about the extirpation and removal of the usurpers and oppressors from the seat of government.<a class="see-footnote" id="footnoteref9_a3gdg0e" title="See Robertson, Religious Foundations, pp. 76-81." href="#footnote9_a3gdg0e">9</a> Therefore the Levellers held that resistance and rebellion against an existing tyrannical government was lawful and right. Although the Levellers were originally aligned with Crom­well and the Independents, they soon realized that Cromwell, with Parlia­ment under his control, was merely another usurper. Thus, if tyranny was resistible in a king, then they concluded that it was also resistible in Parliament.<a class="see-footnote" id="footnoteref10_rluh1aq" title="Ibid., p. 77." href="#footnote10_rluh1aq">10</a></p>
<p>The Leveller's general devotion to English common law and the tradi­tional British liberties is best exemplified in Lilburne's attitude towards the trial and execution of Charles I. Lilburne opposed trying the king by a special court. He had no objection in principle to the trial of the king, or to his execution if he were found guilty. However, according to Lilburne's view, neither the Long Parliament nor the Rump was entitled to try the king or send him to trial. He wished to postpone all action against the king until some sort of constitutional settlement could be made. To Lilburne, this meant the acceptance by the people at large of the Agreement of the People. Any action which the Rump took against the king would be arbitrary and an abuse of the power of the sword. The High Court of Justice, which was appointed to try the king, was an extraordinary tribunal, an invention of a political emergency and packed with partisans. The vague charge of treason against the king was open to the fatal criticism that it was based on no known law. Instead, Lilburne urged that the king was entitled to a trial by jury in the regular courts of the land and subject to the judgment of twelve jurors, like every other Englishman. The charge for which he should stand was that he had counselled and commissioned murder (on the battlefield).<a class="see-footnote" id="footnoteref11_zjnbkqr" title="Brailsford, The Levellers and the English Revolution, pp. 457-58." href="#footnote11_zjnbkqr">11</a> Despite their enmity towards the king, Lilburne and most of the other Levellers were objective enough in their thinking to realize that if arbitrary treatment could be meted out to the king, contrary to known forms of law, then they, too, might be subject to such capricious treatment. Overton, alone among the Leveller leaders, approved without reservation the manner and execution of judging the king; he called it the finest piece of justice that was ever had in England.</p>
<p>Although much Leveller support originated in the Army, they were al­ways cautious lest the military power of the Army supersede civilian legal authority. Of course, their fears were borne out. In their eyes, an English soldier was first an English citizen, with all the concomitant rights and duties of a citizen; and then, only secondarily, were they "volunteer" soldiers who had taken up arms to defend the parliamentary cause. In their estimation, they could not be sent overseas without their own consent. Therefore Cromwell's attempt to subdue Ireland, together with the chronic shortage and lateness of pay for the soldiers, generated much discontent in the Army, manifesting itself in a libertarian opposition to imperialism and militarism. The Levellers saw the Catholic Irish as their fellow men, who were as much entitled to claim their own liberty as were the Levellers themselves. Their code of ethics bridged foreign borders. In general, the Levellers rated the sovereignty of the individual's conscience high above the commands of military generals or the jurisdiction of the state. The Levellers established the moral foundation for opposition to Cromwellian imperial­ism by recognizing the individual Irishman's claim to his own land. They asked if it was not as unjust to take away the laws and liberties of the Irishmen as it was to deprive an Englishman of his. Leveller anti-militarism and anti-imperialism was climaxed by the death of a young Leveller soldier, who was cashiered, court-martialed, and shot by Cromwell's orders. Re­fusing to wear the usual bandage over his eyes, Robert Lockyer faced, without fear, the firing squad which shot him to death. Before he fell he told those firing the shots that their obedience to superior orders did not acquit them of murder.<a class="see-footnote" id="footnoteref12_6gll4aj" title="Ibid., pp. 498-506." href="#footnote12_6gll4aj">12</a> The Leveller defense of the right of the Irish to keep their own fields and practice their own faith is the earliest, and not the least dis­tinguished, example in English history of the struggle of a popular party against imperialism.<a class="see-footnote" id="footnoteref13_kehl8op" title="Ibid., p. 384." href="#footnote13_kehl8op">13</a></p>
<p>In Leveller opinion, Cromwell's imperialism was just another instance of his and Parliament's failure to govern by law after having succeeded Charles I to power. Lilburne and Overton saw the English nation as having therefore been reduced to the original law of nature, and they reasoned that individual citizens no longer owed any obedience or allegiance to these tyrannical politicians. The Levellers proposed that a new political settle­ment be made in which all Englishmen would give their consent to the Agreement of the People. The Agreement was a written, "constitutional" document prepared and revised several times by the Leveller leaders. It called for the abolition of the Long Parliament and the selection of a new Parliament based on more equitable and democratic rules. The Agreement itself was not to be passed upon by Parliament, since it was meant to be superior to Parliament. The Levellers hoped that the document would be unanimously adopted by members of the Army and then be signed by the people at large at the first general election. It was clearly the forerunner of our modern constitutions and plainly illustrates the Leveller's premise that society could be constituted on an entirely voluntary basis.<a class="see-footnote" id="footnoteref14_dotw2e4" title="Ibid., p. 264." href="#footnote14_dotw2e4">14</a></p>
<p>The adoption by Leveller thinkers of a "state of nature" theory was quite evident in the Putney Debates, which took place between the Levellers and the Army grandees in 1647. The debates illustrate the radical nature of Leveller thought. In regard to the Army's past promises, the Levellers theorized that nothing was binding if it conflicted with reason, justice, and the safety of the people.<a class="see-footnote" id="footnoteref15_qekfoyg" title="Woodhouse, "Introduction," Puritanism and Liberty, p. 28." href="#footnote15_qekfoyg">15</a> When Henry Ireton, Cromwell's son-in-law, claimed that the Levellers would destroy all property, they confidently appealed to the law of nature to demonstrate that the right to property is guaranteed by the law of nature, and not, as Ireton maintained, merely by positive government laws.<a class="see-footnote" id="footnoteref16_zezula7" title="Ibid., "Introduction," p. 91." href="#footnote16_zezula7">16</a> Clarke, one of the Leveller debaters, argued that the law of nature is the basis of all constitutions. "Yet really properties are the foundations of constitutions, and not constitutions of property. For if so be there were no constitutions, yet the law of nature does give a prin­ciple for every man to have a property of what he has or may have which is not another man's. This natural right of property is the ground of mine and thine."<a class="see-footnote" id="footnoteref17_eagpeo3" title="Ibid., "Putney Debates," p. 75." href="#footnote17_eagpeo3">17</a> Furthermore, it is the law of nature that teaches the individual his rights and their attendant duties: the right and duty of self-preservation, and the natural limits of obedience, and the right and duty of resistance to tyrannical rulers. It teaches him what are the ends of government; and it inculcates the basic principles of social life — the principles of natural justice and equity which dictate the political equality of all men within the state and which are based upon the maxim "to do unto others as you would have them do unto you."<a class="see-footnote" id="footnoteref18_c4hfi23" title="Ibid., "Introduction," p. 91." href="#footnote18_c4hfi23">18</a></p>
<p>The Levellers, especially Lilburne, were sensitive about their name and its connotations, and they protested repeatedly that they had no intention of levelling men's estates (i.e., forcefully distributing property from the rich to the poor). There is no question, however, that it was their intention to end every form of political and legal privilege, privilege which served to enrich members of the governing class.<a class="see-footnote" id="footnoteref19_07upb6w" title="Brailsford, The Levellers and the English Revolution, p. 315." href="#footnote19_07upb6w">19</a> The basic rift in society, for the Levellers, was not the division between wage earner and capitalist, but between the rich who profited from government monopolies and privileges and the poor and middle class who suffered from such favoritism. In effect, the Levellers saw a conflict between the producers and the politicians in society. Within a few months after the Putney Debates, the Levellers were espousing a remarkably class-conscious theory of the State, in which the Independent leaders were seen as part of a conspiracy of the rich and powerful to keep down the poorer and more industrious people.<a class="see-footnote" id="footnoteref20_pt3fyq1" title="Macpherson, Political Theory, p. 152." href="#footnote20_pt3fyq1">20</a></p>
<p>Lilburne was one of the firmest defenders of a positive social order based on property.<a class="see-footnote" id="footnoteref21_0rxer4t" title="Brian Manning, The English People and the English Revolution, 1640-1649 (London: Hennemann Publishers, 1976), p. 296." href="#footnote21_0rxer4t">21</a> He was not opposed to the taking of interest on money loans nor for the renting of land. He claimed that the Levellers were the truest and most constant asserters of liberty and property ("which are quite opposite to community and levelling").<a class="see-footnote" id="footnoteref22_xhmzbt6" title="Ibid., p. 295." href="#footnote22_xhmzbt6">22</a> In one of his later books, Lilburne states his strongest disavowal of levelling. He not only denies his party's intention to level property, but also condemns any who do aim to level property. In Lilburne's opinion and judgment,</p>
<p class="indent2">this Conceit of Levelling of property and Magistracy is so ridiculous and foolish an opinion, as no man of brains, reason, or ingenuity, can be imagined such a sot as to maintain such a principle, because it would, if practiced destroy not only any industry in the world, but raze the very foundation of generation, and of subsistence or being of one man by another. For as industry and valour by which the societies of mankind are maintained and preserved, who will take the pains for that which when he hath gotten is not his own, but must be equally shared in, by every lazy, simple, dronish sot? or who will fight for that, wherein he hath no other interest, but such as must be subject to the will and pleasure of another, yea of every coward and base low spirited fellow, that in his sitting still must share in common with a valiant man in all his brave and noble achievement? The ancient encouragement to men that were to defend their Country was this: that they were to hazard their persons for that which was their own, to wit, their own wives, their own children, their own Estates. And this give me leave to say, and that in truth, that those men in England, that are most branded with the name of Levellers, are of all in that Nation, most free from any design of Levelling, in the sense we have spoken of.<a class="see-footnote" id="footnoteref23_jlxiihz" title="Quoted in Robertson, The Religious Foundations, p. 87." href="#footnote23_jlxiihz">23</a></p>
<p>No Leveller leader ever called for the compulsory redistribution of pro­perty, but Walwyn did go so far as to advocate a voluntary sort of com­munism, if it were first agreed upon unanimously by those participating. In Walwyn's opinion the attempt to induce the levelling of men's estates was most injurious, "unless there did precede an universal assent thereunto from all and every one of the People." He further pointed out:</p>
<p class="indent2">The Community amongst the primitive Christians, was <em>Voluntary</em>, not <em>Coercive</em>; they <em>brought </em>their goods and laid them at the Apostles feet, they were not enjoined to bring them, it was the effect of their Charity. ...</p>
<p class="indent2"> We [the Levellers] profess therefore that we never had it in our thoughts to Level men's estates, it being the utmost of our aim that the Commonwealth be reduced to such a pass that every man may with as much security as may be enjoy his propriety.<a class="see-footnote" id="footnoteref24_jdkzxd6" title="Overton, A Manifestation, pp. 390-91." href="#footnote24_jdkzxd6">24</a></p>
<p>Though each Leveller leader had his own opinion on the subject, their com­monly subscribed statements explicitly demanded that Parliament be legally bound not to level men's estates, destroy propriety, or make all things com­mon.<a class="see-footnote" id="footnoteref25_ltulchq" title="Macpherson, Political Theory, p. 138." href="#footnote25_ltulchq">25</a> They all insisted that property was a natural right of the individual. It was on this concept of natural right that they based their case, not only for individual property, but also for government by consent and for civil and religious liberties. Their fundamental position was that every man is naturally the proprietor of his own person.<a class="see-footnote" id="footnoteref26_tbbgjn7" title="See Macpherson's discussion in ibid., pp. 137-57." href="#footnote26_tbbgjn7">26</a></p>
<p>This fundamental position is most strikingly set forth in some of Richard Overton's pamphlets, which were written as Leveller propaganda. Both in his <em>An Arrow Against All Tyrants</em> (October 10, 1646) and in his <em>Appeal </em>(July 1647) he endorses a principled and far-reaching theory of natural rights from which he derives all civil and political rights. The two opening paragraphs of the <em>Arrow </em>deserve being quoted in full:</p>
<p class="indent2">To every individual in nature is given an individual property by nature, not to be invaded or usurped by any: for every one as he is himself, so he hath a self propriety, else could he not be himself, and on this no second may presume to deprive any of, without manifest violation and affront to the very principles of nature, and of the Rules of equity and justice between man and man; mine and thine cannot be, except this be; No man hath power over my rights and liberties, and I over no man's; I may be but an Individual, enjoy my self, and my self propriety, and may write myself no more than my self, or presume any further; if I do, I am an encroacher and an invader upon an other man's Right, to which I have no Right. For by natural birth, all men are equally alike and born to like propriety, liberty, and freedom, and as we are delivered of God by the hand of nature into this world, every one with a natural, innate freedom and propriety (as it were writ in the table of every man's heart, never to be obliterated) even so are we to live, every one equally and alike to enjoy his Birth-right and privilege; even all whereof God by na­ture hath made him free.</p>
<p class="indent2"> And this by nature every one desires aims at, and requires for no man naturally would be befooled of his liberty by his neighbor's craft, or enslaved by his neighbor's might, for it is nature's instinct to preserve it self, from all things hurtful and obnoxious, and this in nature is granted of all to be most reasonable, equal and just, not to be rooted out of the kind, even of equal duration with the creature: And from this fountain or root, all just human powers take their original; not immediately from God (as Kings usually plead their prerogative) but mediately by the hand of nature, as from the represented to the representors; for originally, God hath implanted them in the creature, and from the creature those powers immediately proceed; and no further: and no more may be com­municated than stands for the better being weal, or safety thereof: and this is man's prerogative and no further, so much and no more may be given or received thereof: even so much as is conducent to a better being, more safety and freedom, and no more; he that gives more sins against his own flesh; and he that takes more, is a Thief and Robber to his kind: Every man by nature being a King, Priest and Prophet in his own natural circuit and compass, whereof no second may partake, but by deputation, commission, and free consent from him, whose natural right and freedom it is.<a class="see-footnote" id="footnoteref27_k82tjn4" title="Overton, An Arrow Against All Tyrants (1646), pp. 3-4. Copy from the Huntington Library collection. I would like to thank Carey Bliss, Curator of Rare Books and Manu­scripts at the Henry E. Huntington Library, San Marino, Calif., who was most helpful in supplying copies of documents in the collection. I also obtained a copy of An Arrow from Duke University, Durham, N.C. It has also been reprinted by the Rota Press of the Uni­versity of Exeter, England (ISBN 0-904617-05X). The same quotation also appears in Macpherson, Political Theory, pp. 140-41." href="#footnote27_k82tjn4">27</a></p>
<p>In the <em>Appeal </em>Overton makes an even more positive assertion of the reason for natural right and self-propriety:</p>
<p class="indent2">It is a firm Law and radical principle in Nature, engraven in the tables of the heart by the finger of God in creation for every living moving thing, wherein there is a breath of life to defend, preserve, award, and deliver it self from all things hurtful, destructive and obnoxious thereto to the utmost of its power: Therefore from hence is conveyed to all men in general, and to every man in particular, an undoubted principle of reason, by all rational and just ways and means possibly he may, to save, defend and deliver himself from all oppression, violence and cruelty whatsoever, and (in duty to his own safety and being) to leave no just expedient unattempted for his delivery therefrom: and this is rational and just; to deny it is to overturn the law of nature, yea, and of Religion too; for the contrary lets in nothing but self murder, violence and cruelty.<a class="see-footnote" id="footnoteref28_rws3z4r" title="Overton, An Appeal from the Degenerate Representative Body, in Wolfe, Leveller Manijestoes, pp. 162-63. The same quotation appears in Macpherson, Political Theory, p. 141." href="#footnote28_rws3z4r">28</a></p>
<p>Here is Overton's ultimate justification for himself and the Leveller movement. In tones that presage those of John Locke of the 1680's and Thomas Paine of the 1770's, Overton marshals the dogmas of natural liberty in support of popular government by consent, toleration, and free­dom of the press.<a class="see-footnote" id="footnoteref29_m7mzq9a" title="Haller, Tracts on Liberty, 1:114." href="#footnote29_m7mzq9a">29</a> Here is the "proprietorial quality of the Levellers' in­dividualism". Every man and woman, being an individual person, is entitled to self-propriety. "What makes a man human is his freedom from other men." Man's essence is his freedom and that can only mean self-control over one's own person and capacities. However, self-proprietorship did not mean passive enjoyment. "The Levellers demanded this manifold property in one's own person as a prerequisite of active use and enjoyment of one's capacities. Men were created to improve, and enjoy by improving, their capacities. Their propriety in themselves excluded all others, but did not ex­clude their duty to their creator and to themselves."<a class="see-footnote" id="footnoteref30_sfqchrj" title="Macpherson, Political Theory, p. 142." href="#footnote30_sfqchrj">30</a></p>
<p>The little known of Overton's career is that it was short and hectic. The best of his writings were written while he was in jail. He probably spent some part of his early life in Holland, where he learned the printing trade and imbibed the Anabaptist tradition of dissent. By the mid-1640's he had made the acquaintance of John Lilburne and joined with him in attacking the established church. In 1643, Overton wrote an anonymous tract entitled <em>Man's Mortality</em>, setting forth his sectarian views on religion. He was repeatedly denounced as a heretic, but kept writing his various satirical and anti-clerical pamphlets which he printed on his own press. In I 646, Overton became concerned over the imprisonment of Lilburne and participated in drafting <em>A Remonstrance of Many Thousand Citizens, and Other Free­ Born People of England, to Their Own House of Commons. Occasioned Through the Illegal and Barbarous Imprisonment of that Famous and Worthy Sufferer for His Country's Freedoms, Lieutenant Col. John Lilburne</em> (July 7, 1646).<a class="see-footnote" id="footnoteref31_q7g258l" title="Overton, A Remonstrance of Many Thousand Citizens, in Wolfe, Leveller Manifestoes, pp. 113-30." href="#footnote31_q7g258l">31</a></p>
<p>The Remonstrance opens with a very clear statement of the Leveller theory of government — one based on consent of the governed and on a dele­gation of powers from the citizenry to their elected representatives.</p>
<p class="indent2">We are well assured, yet cannot forget, that the cause of our choosing you to be <em>Parliament-men</em>, was to deliver us from all kind of Bondage, and to preserve the Common-wealth in Peace and Happiness: For effecting whereof, we possessed you with the same Power that was in our selves, to have done the same; For we might justly have done it our selves without you, if we had thought it convenient. ...</p>
<p class="indent2"> But ye are to remember, this was only of us but a Power of trust, (which is ever revokable, and cannot be otherwise,) and to be employed to no other end, than our own well-being. ... We are your Principals, and you our Agents; it is a Truth which you cannot but acknowledge; For if you or any other shall assume, or exercise any Power, that is not derived from our Trust and choice thereunto, that Power is no less than usurpation and Oppression, from which we expect to be freed, in whomsoever we find it; it being altogether inconsistent with the nature of <em>just Freedom</em>, which ye also very well understand.<a class="see-footnote" id="footnoteref32_dkfw8yn" title="Ibid., p. 113." href="#footnote32_dkfw8yn">32</a></p>
<p>After outlining the historical failure of former kings to maintain the people's liberties, the <em>Remonstrance </em>declares that men of the present age will no longer bear the tyranny of Charles I and that the members of Par­liament, who</p>
<p class="indent2">were chosen to work our deliverance, and to Estate us in natural and just liberty agreeable to <em>Reason </em>and common <em>equity</em>; for whatever our Fore-fathers were; or whatever they did or suffered, or were enforced to yield unto; we are men of the present age, and ought to be absolutely free from all kinds of exorbitances and molestations or Arbitrary Power, and you we choose to free us from all without exception or limi­tation, ... and we were full of confidence that ye also would have dealt impartially on our behalf, and made us the most absolute free People in the world.<a class="see-footnote" id="footnoteref33_xq6aniz" title="Ibid., pp. 114-15." href="#footnote33_xq6aniz">33</a></p>
<p>The <em>Remonstrance </em>also illustrates the Leveller attitude towards religious toleration. Although it admits that the House of Commons might propose what form of religion they deem best and might offer such to the public, the authors of <em>Remonstrance </em>firmly declare that no Englishman can be com­pelled to embrace a state religion.</p>
<p class="indent2">Whereas truly we are well assured, neither you, nor none else, can have any into Power at all to conclude the People in matters that concern the Worship of God, for therein every one of us ought to be fully assured in our own minds, and to be sure to Worship him according to our Con­sciences.</p>
<p class="indent2"> Ye may propose what Form ye conceive best, and most available for Information and well-being of the Nation, and may persuade, and invite thereunto, but compell, ye cannot justly; for ye have no Power from Us so to do, nor could you have; for we could not confer a Power that was not in our selves, there being none of Us, that can without wilfull sin bind our selves to Worship God after any other way, than what (to a tittle,) in our own particular understandings, we approve to be just.<a class="see-footnote" id="footnoteref34_5g1nmhq" title="Ibid., p. 122." href="#footnote34_5g1nmhq">34</a></p>
<p>The <em>Remonstrance </em>ends with a list of grievances that the Levellers have against the House of Commons, by whom they believe that they have been betrayed. A call is made for an "agreement of the people," since the mem­bers of the House of Commons know that the "Laws of this Nation are un­worthy a <em>Free-People</em>, and deserve from first to last, to be considered, and seriously debated, and reduced to an agreement with common <em>equity</em>, and <em>right reason</em>, which ought to be the Form and Life of every Government."<a class="see-footnote" id="footnoteref35_t11aw73" title="Ibid., p. 124." href="#footnote35_t11aw73">35</a> The Levellers were particularly grieved about the practice of conscription, and in probably one of the earliest attacks on that practice they wrote:</p>
<p class="indent2">We entreat you to consider what difference there is, between binding a man to an Oar, as a <em>Gally-slave</em> in <em>Turkey </em>or <em>Algeria</em>, and Pressing of men to serve in your War; to surprise a man on the sudden, force him from his Calling, where he lived comfortably, from a good trade; from his dear Parents, Wife or Children, against inclination, disposition to fight for a Cause he understands not, and in Company of such, as he has no comfort to be with; for Pay, that will scarce give him sustenance; and if he live, to return to a lost trade, or beggary, or not much better: If any Tyranny or cruelty exceed this; it must be worse than that of a <em>Turkish Gally-slave</em>.<a class="see-footnote" id="footnoteref36_p5etfjf" title="Ibid., p. 125." href="#footnote36_p5etfjf">36</a></p>
<p>The Levellers also complained about the imposition of customs duties on imports and claimed that their collection was most prejudicial to the nation. There were so many customs officers that "it is a very slavery to have any thing to do with them." The Levellers lamented that "Truly it is a sad thing, but too true, a plain quiet-minded man in any place in <em>England</em>, is just like a harmless sheep in a Thicket, can hardly move or stir, but he shall be stretched, and loose his wool."<a class="see-footnote" id="footnoteref37_c8tzopz" title="Ibid., pp. 126-27." href="#footnote37_c8tzopz">37</a></p>
<p>Overton continued to express his support for Lilburne, and about August I, 1646 he published another one of his anonymous pamphlets, <em>An Alarum to the House of Lords</em>. In it Overton rebelliously warned the Lords that "if timely cautions will not avail with you, you must expect to be bridled, for we are resolved upon our natural <em>Rights and Freedoms</em>, and to be enslaved to none, how magnificent soever, with rotten titles of honor."<a class="see-footnote" id="footnoteref38_3yox5ea" title="Overton, An Aarum to the House of Lords (1646), p. 6. Copy from the Huntington Library collection." href="#footnote38_3yox5ea">38</a> Lilburne had been imprisoned partly because of his written attacks on the vested interests of the day. According to Overton, Lilburne's writings</p>
<p class="indent2">have been dangerous to all corrupt Interests in the <em>Commonwealth</em>; as First, to all Arbitrary Power, in King, or Lords, or any other.</p>
<p class="indent2">Secondly, <em>To the Power</em> and delusion of the <em>Clergy</em>, and their oppression of Conscionable Religious People.</p>
<p class="indent2">Thirdly, to the most prejudicial ways of our <em>Legal Trials</em> in all Courts, and to the burdensome Society of Lawyers; that live upon the impov­erishing of the industrious and laborious People; things which he proveth to have been forced upon this nation by Conquest, and con­tinued against Reason, and the weal of the People.</p>
<p class="indent2">Fourthly, To all <em>Monopolists</em>, and engrossers of trade: as the <em>Merchant Adventurers</em>, and the like: all which he hath (as others), proved to the Ruin of the People: and because of this his love to Truth, Justice, and his Country; and his opening of these things; and his opposition thereof to the uttermost of his Power: all these mighty Parties, put all their policy and strength in one, utterly to destroy him.</p>
<p class="indent2">But he hath a good Cause; and all good People (that desire not to live by the Oppression of others,) on his side; and that your Lordships will find; for all these things will be laid open at the Sun, and every man will see wherefore it is you call his Books <em>scandalous</em>, <em>seditious</em>, <em>dangerous Pamphlets</em>, and why the <em>Clergy</em>, the <em>Judges, Lawyers</em>, and <em>Monopolists</em>, are his deadly adversaries, even because he deals plainly between you all; and the people, whom you labor by all means jointly to keep in bondage and Vassalage to your wills.<a class="see-footnote" id="footnoteref39_glq1ch2" title="Ibid., pp. 6-7." href="#footnote39_glq1ch2">39</a></p>
<p>The House of Lords reacted against Overton's <em>Alarum </em>by issuing orders for his immediate arrest, which took place on August 11, 1646, less than two weeks after the appearance of the pamphlet. Overton was held as a prisoner of the Lords and eventually lodged in Newgate prison. It was not until September 16, 1647, after more than a year in prison, that he was freed by order of the House of Commons. While imprisoned, Overton wrote and published some of his best pamphlet attacks on the Lords and Parliament.</p>
<p><em>A Defiance</em>, the first of his "prison" pamphlets, appeared on September 9, 1646, less than a month after his initial arrest. In his confrontations with the House of Lords, Overton took exactly the same stand as had Lilburne. Overton simply denied their authority to question him, as he believed that, as a commoner, he was not at all subject to their jurisdiction.</p>
<p class="indent2">I bid defiance to their injustice, usurpation and tyranny, and scorn even the least connivance, glimpse, jot, or tittle of their favor: let them do as much against me by the Rule of Equity, Reason, and Justice for my Testimony and Protestation against them in this thing as possibly they can, and I shall be content and rest: for <em>Nihil quad est contra rationem est licitum</em>; Nothing which is against reason is lawful, it is a sure maxim in law, for Reason is the life of Law. But if they transgress, and go beyond the bounds of rationality, justice, and equity, I shall to the ut­most of my power make opposition and contestation to the last gasp of vital breath; and I will not beg their favor, nor lie at their feet for mercy; let me have justice, or let me perish. I'll not sell my birth-right for a mess of pottage, for Justice is my natural right, my heirdom, my inheritance by lineal descent from the loins of <em>Adam</em>, and so to all the sons of men as their proper right without respect of persons. The crooked course of Favor, greatness, or the like, is not the proper channel of Justice; it is pure, and individual, equally and alike proper unto all, descending and running in that pure line streaming and issuing out unto all, though grievously corrupted, vitiated, and adulterated from generation to generation.<a class="see-footnote" id="footnoteref40_yese9xy" title="Overton, A Defiance Against All Arbitrary Usurpations (1646), p. 6. From the Huntington Library collection. The title of this essay ... "Come What, Come Will," is taken from A Defiance, p. 13." href="#footnote40_yese9xy">40</a></p>
<p>One of the great issues between Lilburne and Overton, and the House of Lords, was the question of self-incrimination. Literally, these were the men who made the U. S. Constitution's Fifth Amendment privilege against self­incrimination a reality. According to Overton, the law of England bound no man to betray himself, as the abolition of the Star Chamber proceedings had confirmed, and his refusal to answer the interrogatories of the Lords, he asserted, was not evidence of his guilt, but only of his obstinacy in ad­hering to his legal rights.<a class="see-footnote" id="footnoteref41_d84g6n6" title="See Leonard Levy, The Origins of the Fifth Amendment (New York: Oxford University Press, 1968), pp. 293-300." href="#footnote41_d84g6n6">41</a></p>
<p><em>An Arrow</em>, Overton's next pamphlet, was issued from prison on October 12, 1646. As quoted earlier, the opening passages from <em>An Arrow</em> set forth Overton's theory of natural self-propriety. Overton then goes on to discuss representation and "magisterial," or governmental, powers. He points out that a holder of governmental office is not immune to breaking either the common or natural law, and that government office must not be used as a shield or excuse for law-breaking. Any government officer, whether king or member of parliament, may be rightfully resisted if he has not complied with the law. In Overton's circumstances, this meant that neither King nor Lords could legally direct his apprehension or imprisonment until he had first been tried and convicted by a jury of his peers. In a case such as his, any commoner might rightfully resist the agents or ministers of government, much as they would resist the unlawful advances of trespassers, thieves, burglars, felons, and murderers. "No legal conviction being made, the person invaded and assaulted by such open force of Arms may lawfully arm themselves, fortify their Houses (which are their Castles in the judgment of the Law) against them, yea disarm, beat, wound, repress and kill them in their just necessary defense of their own persons, houses, goods, wives, and families, and not be guilty of the least offense."<a class="see-footnote" id="footnoteref42_j4ucq01" title="Overton, An Arrow, p. 9." href="#footnote42_j4ucq01">42</a></p>
<p>Still imprisoned in 1647, Overton issued yet another of his "prison" pamphlets on February 10th of that year. He was still bound to state his case to the world and bring attention to his plight and that of his wife and family. Overton's intransigence had not waned even though he had been im­prisoned since August 1646. Around November 3, he had been brought before a Committee of the House of Commons, at their order, for an in­quiry into the reason for his incarceration by the House of Lords. He had hoped for justice at the Committee's hands and, in this new pamphlet, entitled <em>Commoners Complaint</em>, had resolved</p>
<p class="indent2">in myself, that as in heart I defied all injustice, cruelty, tyranny, and oppression, all arbitrary usurpation and usurpers whatsoever, so in per­son (come life, come death, come what come would) I would not be so treacherous to my own self, to my wife and children, and especially to this Nation (the Land of my Nativity) in general, as personally to yield my active submission of any limb that was mine (either in substance or in show).<a class="see-footnote" id="footnoteref43_ke1rqhi" title="Overton, Commoners Complaint (1647), p. 3. Copy from the Huntington Library collection." href="#footnote43_ke1rqhi">43</a></p>
<p>In effect his attitude was that, if his jailers did not have a valid warrant for remanding him back to Newgate prison, then he would not "set forth one leg before another" for them and they should have to carry him if he was to be returned to jail.</p>
<p>Much of the <em>Commoners Complaint</em> is devoted to explaining Overton's reasons for his course of resistance. He wanted his reasons to be known, lest his actions be misunderstood by the public. He begins his defense by point­ing out:</p>
<p class="indent2">All <em>State-Deprivation</em> of life, limb, goods, liberty or freedom, either is, or should be, all and every particle thereof, the just execution of the <em>Law executing</em>: For in Equity, the Action executing is indivisible from the Law, and only and precisely proper thereto, and not at all to the par­ty executed: yea, though a man legally guilty of death should be con­demned by the same legal Authority (or rather by persons therein en­trusted)<em> to cut his own throat</em>; yet were he in <em>equity </em>not <em>bound </em>thereun­to, but in so doing should be <em>guilty of his own blood</em>. And the Law of our Land makes no man his own Executioner. ... and nature itself teaches that no man shall be his own Butcher or Executioner, for in so doing, he should sin against his Own flesh, which is a thing most un­natural and inhumane.</p>
<p class="indent2">But my <em>rejection of carrying my own Body to the Gaol</em>, was no other but the refusal to be my own Executioner therein, for though it were not of that degree of cruelty and inhumanity to my own flesh, as to cut my own throat; yet was it of the same nature and kind. And therefore if the one must be condemned as unjust, illegal and unnatural, so must the other in its kind, so that as I was not bound, with my hands to cut my own throat, so with my feet, I was not bound to carry myself to prison.<a class="see-footnote" id="footnoteref44_sp0gtsk" title="Ibid., pp. 4-5." href="#footnote44_sp0gtsk">44</a></p>
<p>Overton then discourses on the relationship of Equity and Law and is not afraid to place the reason and equity of the law above Law itself:</p>
<p class="indent2">Though the Letter of the Law should enjoin its Condemnants to be their own executioners, yet were that by its own equity condemned, nulled, and made void, for the letter must be subject to the equity: and look how much the letter transgressed the equity, even so much it is unequal, and is of no validity or force, for the Law taken from its original reason and end is made a shell without a kernel, a shadow without a substance, a Carcass without life: for the equity and reason thereof is that which gives it a <em>legal being and life</em>, and makes it authoritative and binding, if this be not granted, injustice may be a Law, tyranny may be a Law, lust, will, pride, covetousness, and what not? may be Laws; for if equity be not the bounder of the Law, over the corrupt nature of man, all will fall<br />into confusion, and one man will devour another.<a class="see-footnote" id="footnoteref45_sg0wd44" title="Ibid., p. 6." href="#footnote45_sg0wd44">45</a></p>
<p>Overton did not want it said of him that he "went to prison"; rather it must be said of him that "he was carried there." Though his actions and resistance had no precedent in law he was prepared to argue the rationality of his be­havior. "Reason" was his only justification and "reason has no precedent; for reason is the fountain of all just precedents."<a class="see-footnote" id="footnoteref46_9gyi0jk" title="Ibid." href="#footnote46_9gyi0jk">46</a> He was prepared to live or die to uphold his principles:</p>
<p class="indent2">For as I am a <em>Freeman by Birth</em>, so I am resolved to live and die, both in heart word and deed, in substance and in show, maugre the Arbitrary malice of the House of Lords: yea if ought else I can devise to show my actual enmity and defiance against their arbitrary power, I'll do it, though it cost the life of me, and mine, and therefore I care not who lets them know.<a class="see-footnote" id="footnoteref47_qjb3n2j" title="Ibid., pp. 9-10." href="#footnote47_qjb3n2j">47</a></p>
<p>Cementing his attitude with a bit of humor, Overton claimed that his legs were not subject to the jurisdiction of the Lords. Being free of their juris­diction ''<em>from the Crown of my head to the Sole of my feet</em>," he knew no reason why he should ''<em>foot it for them</em>," or "dance" to their arbitrary war­rants, except that they might "<em>play to the good old tune of the Law of the Land</em>."<a class="see-footnote" id="footnoteref48_50rnoru" title="Ibid., p. 10." href="#footnote48_50rnoru">48</a></p>
<p>During his appearance before the Committee of the House of Commons, Overton engaged in a debate on which House of Parliament had jurisdiction over him. It was his contention that, if the House of Commons had authority to recall him from jail and question him in committee, then he must be subject to their jurisdiction and not the jurisdiction of the House of Lords. Therefore his jailers from Newgate had no authority to return him to prison, especially since the Commons' Committee had not issued a warrant for his return. Overton was playing a dangerous game, but he even went so far as to offer to return with his jailers, if he were entreated to do so by the Committee. Though offering the Committee more in law than he had to, he was baiting them. They refused to urge him back to prison; but had they done so, Overton could have claimed that he was thereby subject to their jurisdiction. Nevertheless, Overton reveals that he was prepared to defy the Committee, even had it requested his voluntary return to Newgate:</p>
<p class="indent2">For do you think that I am such a fool to part with my liberty, for nothing. Sir, our liberties have been bought at a dearer rate, then to be trifled and slighted away. ...</p>
<p class="indent2">But now Sir, I would not have you think from these demands of mine, that I would be subject to an arbitrary power more in you then in the other, for truly in those demands there was tacitly couched a supposi­tion of that which I knew could not be granted ... but and if I had been imprisoned thereon, after I had given their Lordships that Sob, you should have heard from me with a witness; for I cannot suffer oppres­sion and be silent.<a class="see-footnote" id="footnoteref49_0a7rg6e" title="Ibid., pp. 12-13." href="#footnote49_0a7rg6e">49</a></p>
<p>At any rate, Overton's jailers dragged him away from the Committee and carried him by boat toward Newgate. When he was landed, they pleaded with him to walk up a long hill under his own power.</p>
<p class="indent2">I was not minded to be their DRUDGE, or to make use of my feet to carry the rest of my body to the Gaol, therefore I let them hang as if they had been none of my own, or like a couple of farthin Candles dangling at my knees, and after they had dragged me in that admireable posture a while, the one took me very reverently by the head, and the other as reverently by the feet, as if he had intended to have done Homage to his Holiness' great Toe, and so they carried me: but truly Sir, I laughed at the conceit in my sleeve. [Eventually they wearied and soon carried me] just as if I had been a dead Dog, they dragged and trailed my body upon the stones, and without all reverence to my cloth, drew me through the dirt and mire.<a class="see-footnote" id="footnoteref50_jy8i5wq" title="Ibid., p. 13." href="#footnote50_jy8i5wq">50</a></p>
<p>Upon his arrival at Newgate prison, they placed him in the lower room, or the Lodge as it was called. Somehow Overton still managed to have a copy of Sir Edward Coke's <em>Institutes </em>on the Magna Charta in his possession. Mr. Briscoe, the jailer, spying the book, demanded to have it, which Overton promptly refused. Overton was mobbed and eventually the book was wrestled from him. "And thus by an assault they got the great Charter of <em>Englands Liberties and Freedoms</em>," and thus being "stripped of my armour of proof, the Charter of my legal Rights, Freedoms, and Liberties, after the aforesaid barbarous manner, they hurried me up into the common <a class="see-footnote" id="footnoteref51_563lf4d" title="Ibid., p. 14." href="#footnote51_563lf4d">51</a>Gaol." There, although he was placed in a pair of leg irons, he purposefully refused to either answer the call of the warden, or commission anyone to knock off the leg irons. Finally the warden had Overton carried to his office, where Overton preached to the warden. Overton told the warden that he</p>
<p class="indent2">scorned to crouch or debase his Spirits to the lawless cruelty of any merciless tyrants or Gaolers whatsoever: they may devour my Carcass, and make that bend and break with their cruelty, but I trust in God, that in heart and action to the utmost of my power in the pursuance of jus­tice and truth, I shall bid defiance to the last gasp of breath to all their oppressions and tyrannies whatsoever.<a class="see-footnote" id="footnoteref52_sunnu73" title="Ibid., pp. 15-16." href="#footnote52_sunnu73">52</a></p>
<p>During the course of his imprisonment, around January 6, 1647, Over­ton's wife and his brother had been arrested and committed to Maiden Lane prison by order of the House of Lords. The following day another raid was perpetrated on his dwelling, when agents of the Lords were searching for Overton's sister and her husband. Fortunately, the two escaped along with Overton's three children. Rightfully he laments, "so, <em>Father, Mother, Children, and All, being driven out of House and home, the Doors were shut up</em>; and I, and mine, exposed to the utter ruin and confusion of those insulting, domineering, merciless, Usurpers and Tyrants, <em>The House of Lords</em>."<a class="see-footnote" id="footnoteref53_0nm0oiq" title="Ibid., p. 16." href="#footnote53_0nm0oiq">53</a> Overton then relates how his wife was commanded by the City Marshall to be moved from Maiden Lane prison to Bridewell, "that common Center and receptacle of bauds, whores, and strumpets, more fit for their wanton retrograde Ladies, than for one, who never yet could be taxed of immodesty, <em>either in countenance, gesture, words, or action</em>."<a class="see-footnote" id="footnoteref54_udu63se" title="Ibid., p. 17." href="#footnote54_udu63se">54</a></p>
<p>Overton's wife refused to budge and told the Marshall that she would not stir except upon order or warrant of the House of Commons. The Marshall flew into a fit of angry rage and called for a couple of porters to move her. When they came, Overton relates, the porters told the Marshall "that<em> they would not meddle with a woman that was with child, and had a young sucking infant in her arms, lest in doing so they might do that today which they might answer for tomorrow</em>."<a class="see-footnote" id="footnoteref55_xeuqan4" title="Ibid., p. 18." href="#footnote55_xeuqan4">55</a> A cartman similarly refused to haul Mary Overton to Bridewell. Finally the Marshall gathered his sheriffs and deputies and they broke down the door in order to violently lay hands on her. They "dragged her down the stairs, and in that infamous barbarous manner, drew her headlong upon the stones in all the dirt and the mire of the streets, with the poor Infant still crying and mourning in her Arms, whose life they spared not to hazard by that inhumane barbarous usage."<a class="see-footnote" id="footnoteref56_fg7z3kd" title="Ibid., p. 19." href="#footnote56_fg7z3kd">56</a> Overton was concerned not only for her life and the brutal treatment she had received, but thought that her reputation would be ruined forever by being jailed in Bridewell.</p>
<p>In concluding the <em>Commoners Complaint</em>, Overton stressed that the House of Commons should redress the situation of all those arbitrarily imprisoned by the House of Lords. If the Lords may rule by prerogative,</p>
<p class="indent2">then farewell all liberty and property, all Laws; justice, and equity; and if it must be so, I pray you bear us no longer in suspense and expection of redress, but forthwith let our Doom be proclaimed to the whole world, that the Commons of England may know what to trust to; that we may loose our labor no longer in petitioning, appealing, complaining, and seeking for relief at your hands ... for my part I care not though you and all men forsake me, so long as I know the Lord liveth, who will once judge every man according to his deeds, whether good or evil, and then I am sure I shall have righteous judgment. ...</p>
<p class="indent2">I scorn their mercy, and dare them to do their worse: let them find Prisons, Dungeons, Irons, Halters, etc., and I'll find Carcass, Neck, and Heels, for one in contempt to their usurped jurisdiction; for resolved I am to break before I bend to their oppressions.<a class="see-footnote" id="footnoteref57_mg6muhl" title="Ibid., pp. 22-23." href="#footnote57_mg6muhl">57</a></p>
<p>Sometime in 1647, Mary Overton wrote her own petition to the House of Commons, addressed <em>To the Right Honorable, the Knights, Citizens, and Burgesses, the Parliament of England, Assembled at Westminster, the Humble Appeal and Petition of Mary Overton, Prisoner in Bridewell</em>. In it she related the story of her own arrest and the tribulations of herself, her husband, and family at the hands of the House of Lords. Her petition is full of legal citations, unlike the writings of her husband. Overton had apparently been misinformed, for Mary states that Thomas Overton and also her own brother were taken in the raid upon her home.</p>
<p>Mary Overton's main plea is that justice be dispensed towards her and towards her husband and the rest of their family.</p>
<p class="indent2">In case by Law it shall be found that your Petitioners husband, herself and her brother have done ought worthy of death, or other exemplary punishment, that they may forthwith receive their just execution accordingly. But and if your Petitioner, her husband and brother be legally found not guilty of any transgression of the known Laws of the Land, that then by an Order from this House they may forthwith be dis­charged from under the vassallage and bondage of those insulting and tyrannizing Lords; and that for the future you would be pleased to pro­tect them and the rest of their National Brethren the free Commoners of England from the like Prerogative-insolencies, cruelties and oppression: and that in case this House by the Law of the Land shall find your Petitioners husband, her self and her brother wronged and abused, that you would according to justice give them full and ample reparations for their long and unjust imprisonment, like as you have done of late to sundry of your own Members your Petitioners Fellow Commoners; that you will not any longer deny them the benefit of the Law, which is their birthright and inheritance, and let them not be deprived of that which every monthly Sessions you do allow to thieves and murderers, to have a free and speedy trial.<a class="see-footnote" id="footnoteref58_0p4utoq" title="Mary Ovenon, The Humble Appeal and Petition of Mary Overton (1647), p. 12. Copy from Temple University, Philadelphia." href="#footnote58_0p4utoq">58</a></p>
<p>Meanwhile, Richard Overton was still in Newgate, and on July 8, 1647 he published yet another "prison" pamphlet. His <em>Commoners Complaint</em> had been directed to the House of Commons and had no appreciable effect. Having obviously lost some confidence in the ability of the House of Com­mons to secure his release, Overton took the unprecedented step of ap­pealing directly to the English populace and Army. Realizing that he might be condemned for this bold appeal, Overton again used an argument which he had presented in his <em>Commoners Complaint</em>: "<em>That Reason has no prece­dent, for Reason is the fountain of all just precedents</em> ... therefore where that is, there is a sufficient and justifiable precedent."</p>
<p class="indent2">And if <em>this Principle </em>must be granted of, and obeyed by all, as by no rational man can be denied, then ... [my] <em>Appeal </em>in this nature if grounded upon <em>right Reason</em> is justifiable and warranted, even by That which gives an equitable Authority, life and being to all just Laws, precedents and forms of Government whatsoever, for Reason is their very life and spirit, whereby they are all made lawful and warrant­able ... ; which is the <em>highest </em>kind of <em>Justification </em>and <em>Authority </em>for <em>human Actions</em> that can be; ... <em>right Reason</em> (the fountain of all justice and mercy to the creature) shall and will <em>endure for ever</em>; it is that by which in all our Actions we must stand or fall, be justified or con­demned; for neither <em>Morality </em>nor <em>Divinity </em>among <em>Men </em>can or may transgress the limits of right reason, for whatsoever is unreasonable cannot be justly termed <em>Moral </em>or <em>Divine</em>, and <em>right reason</em> is only com­mensurable and discernable by the rule of merciful <em>Justice </em>and just <em>mercy</em>.<a class="see-footnote" id="footnoteref59_l8u9bgp" title="Richard Overton, An Appeal, p. 158." href="#footnote59_l8u9bgp">59</a></p>
<p>Overton then justifies his own <em>Appeal </em>by referring to "right reason." First he points out that it is a law of nature and religion that people may use all just and expedient means to free themselves from oppression. His <em>Appeal </em>is such a means and is therefore legitimate. Secondly, "necessity" justified his course of action in the <em>Appeal</em>. Parliament had taken up arms against the King out of "necessity" and had proclaimed it "no resistance of Magistracy to side with the just principles and law of nature."<a class="see-footnote" id="footnoteref60_btig2f6" title="Ibid., p. 161." href="#footnote60_btig2f6">60</a> Therefore if any from the House of Commons condemned his <em>Appeal</em>, they were im­plicitly condemning their own rebellion against the King. Lastly, referring to his arguments of self-propriety, which appeared in <em>An Arrow</em>, Overton argues that in appealing to the commoners and soldiers he is tracing "sovereignty" to its actual source:</p>
<p class="indent2"><em>All authority is fundamentally seated in the office, and but ministerially in the persons</em>; therefore, the persons in their Ministrations degenerating from <em>safety </em>to <em>tyranny</em>, their <em>Authority </em>cease and is only to be found in the fundamental original, rise and situation thereof, which is the <em>people</em>, the <em>body represented</em>; for though it ceaseth from the hands of the be­trusted, yet it does not, neither can it cease from its being, for Kings, Parliaments, and etc. may fall from it, but it endure forever, for were this not admitted, there could be no lawful redress in extremity... : it always is either in the hands of the <em>Betrusted </em>or of the <em>Betrusters</em>, while the <em>Betrusted </em>are <em>dischargers </em>of their <em>trust</em>, it remains in their hands, but no sooner the <em>Betrusted </em>betray and forfeit their <em>Trust</em>, but (as all things else in dissolution) it returns from where it came, even to the hands of the <em>Trusters</em>: for all just <em>human powers</em> are betrusted, conferred, and conveyed by joint and common consent, <em>for to every individual in na­ture, is given an individual propriety by nature, not to be invaded or usurped by any</em>, (as in my <em>Arrow Against Tyranny</em> is proved and dis­covered more at large) <em>for every one as he is himself has a self propriety, else could not be himself</em>, and on this no second may presume without consent; and by natural birth, all men are <em>equal and alike born to like propriety and freedom, every man by natural instinct aims at his own safety and weal</em>.<a class="see-footnote" id="footnoteref61_tp97x5j" title="Ibid., p. 162." href="#footnote61_tp97x5j">61</a></p>
<p>After discussing the imprisonment of his family and his own encounter with the House of Lords, Overton analyzes the war against the King. Most important to his argument is the demonstration that Parliament has shown that "resistance to tyranny" is an admissible principle of action, even though tyrants be clothed in "magisterial" robes.</p>
<p class="indent2">Therefore it is in vain for our Members in Parliament to think that we will justify or tolerate the same [tyranny] among them, which we will not endure in the King, to pluck off the <em>Garments of Royalty</em> from oppression and tyranny, and to dress up the same in <em>Parliament Robes</em>: No, no, that was ever and is far from our hearts, and we shall justify or allow the same no more in the one than in the other, for to allow it in the one is to justify it in the other, for it is equally unequal in both, and in it self resistable wheresoever it is found, for were it not resistable, all defensive war whatsoever were unlawful. ... [W]e are bound to the utmost of ­our power to arm and fortify ourselves for our just and necessary de­fense, and by force of Arms to repel and beat back the invading as­saulting enemy, whether it be an enemy for the confusion and extirpa­tion of our persons, or for destruction and ruin of our Laws, our free­doms and liberties, for bondage and slavery are not inferior to death, but rather to be more avoided, condemned, and resisted than present destruction, by how much the more that kind of destruction is more lan­guishing than present, and in pursuance of the just and necessary <em>defensive Opposition</em> we may lawfully, and are in Conscience bound to destroy, kill, and slay the otherwise irresistible enemy for our own preservation and safety whether in our lives, our Laws or our liberties: And against the justice of this <em>defensive principle</em> no degrees, Orders or titles among men can or may prevail, all degrees, Orders and titles, all Laws, Customs and manners among men must be subject to give place and yield thereunto, and it unto none.<a class="see-footnote" id="footnoteref62_hbwhro3" title="Ibid., pp. 176-78." href="#footnote62_hbwhro3">62</a></p>
<p>Thus he concludes that those resorting to a "defensive resistance" do not be­come traitors and rebels against true government.</p>
<p class="indent2">For tyranny is no <em>Magistracy</em>, therefore the resistance of Tyrants is no resistance of Magistrates, except it be of such so nominally; but really and essentially monsters and pests of humanity; ... for Magistracy has its proper compass and confines, and the actors and actions in that com­pass are thereby rendered Magisterial actors and actions to be obeyed by all, and resisted by none; and so such as are resisters thereof, are no Resisters of Magistracy, Authority and Government; but the resistance of the excursions or actions out of that compass and capacity, is no resistance of Magistracy or Magistrates, for it is not their persons which makes their <em>Ministrations Magisterial</em>, but their <em>Ministerial Magistrations</em> which makes their persons Magisterial persons: for Magistracy is not inherent or consistent in the person, but in the office; their persons must run a parallel line in their Ministration with their office, or else their formal deputation or Commissions will not entitle them to the true definition of Magistrates; for the office is but accidentally consistent in the form or external Commission, radically and essentially in the due <em>Ministration</em>.<a class="see-footnote" id="footnoteref63_b4in15l" title="Ibid., p. 180." href="#footnote63_b4in15l">63</a></p>
<p>Countering the claims of religious pacifists, Overton recognizes that all people are entitled to maintain their natural human "being" and subsistence upon earth by resorting to self-defense, if necessary. Pacifism he argues would result in the utter confusion of humanity and the depopulation of na­tions. Nevertheless, he agrees that religious doctrine must not be promul­gated by the sword, although he sees no contradiction in a religious person embracing the principle of self-defense when coercively attacked: "And if the Magistrate should so far extend his <em>compulsive force</em> under pretense of <em>religion </em>and <em>conscience</em>, to the destruction of our <em>human subsistance or being</em>, we may upon the points of your human subsistance and being, lawfully make our <em>defensive resistance</em>, for in itself it is defendable against all opposition or destruction from whence or from whomsoever it shall be."<a class="see-footnote" id="footnoteref64_3a24uaa" title="Ibid., p. 182." href="#footnote64_3a24uaa">64</a> Overton concludes his <em>Appeal </em>by urging all the commoners and soldiers to embrace his cause. If they will not, he writes, then "I have reckoned my cost, and can in this cause for my Country upon honest and just privileges, lay down my life, as freely and willingly, as my most mali­cious enemies can make it a sacrifice to their fury: Do therefore, as it seems good in your own eyes; I have discharged my conscience, and what I have done, I have done; and commit the issue thereof unto God."<a class="see-footnote" id="footnoteref65_lf76w63" title="Ibid., p. 188." href="#footnote65_lf76w63">65</a></p>
<p>Overton was finally released from prison in September or November I 647, after another inquiry by the House of Commons. Although Leveller agitation continued throughout 1648, we do not find Overton back in print until March 1649 with a pamphlet entitled <em>The Hunting of the Foxes</em>, which set forth Leveller grievances against the Army.<a class="see-footnote" id="footnoteref66_izcp1yx" title="Overton, The Hunting of the Foxes, in Wolfe, Leveller Manifestoes, pp. 355-83." href="#footnote66_izcp1yx">66</a> In the meantime, the second phase of the Civil War had commenced and the Scottish Army had been defeated by Cromwell. King Charles I had been seized by the Parlia­mentary Army in December 1648 and executed on January 30, 1649. Although the King's trial and execution were the result of "a fanatical minority of Independents," "ideologically the trial of Charles and the abolition of kingship were the product of Leveller propaganda".<a class="see-footnote" id="footnoteref67_idpj7zy" title="Ibid., p. 94." href="#footnote67_idpj7zy">67</a> The second Agreement of the People been published by the Levellers in Decem­ber 1648, and by mid-1649, they were becoming increasingly disenchanted with Cromwell and the Independents. The Army was moving towards a dic­tatorship; censorship and military law had already been imposed, and Cromwell had refused to adopt the second Agreement of the People.<a class="see-footnote" id="footnoteref68_xs0ps2j" title="Ibid., pp. 99-100." href="#footnote68_xs0ps2j">68</a></p>
<p>It was no wonder, then, that in 1649 Lilburne and other Levellers had composed a new address to Parliament, titled <em>The Second Part of Englands New Chains Discovered</em> (March 24, 1649). It was a direct and bitter attack on the Army and the Independents, "provocative of mutiny and disorder." One historian has described what ensued as follows:</p>
<p class="indent2">The Independents had no choice but to resolve the dispute by sup­pression. On March 24 the Rump declared the pamphlet contained "much false, scandalous, and reproachful Matter." Further, it was "highly seditious ... destructive to the present Government ... tended to Divison and Mutiny in the Army." The authors they declared "guilty of High Treason, and should be proceeded against as Traitors."</p>
<p class="indent2">Accordingly, on March 28, between four and six in the morning, troops of horse and foot surrounded the homes of Lilburne, Walwyn, Prince, and Overton, roused them roughly from their beds, carried them off to Whitehall, there to await questioning by the Council of State. The story of their arrest and subsequent examination is told vividly by Lilburne, Prince, and Overton, in <em>The Picture of the Council of State</em>, published only six days later. The dramatic situation was ideal for propagandistic effect, and the Levellers promptly identified the principle of political justice with their own sufferings at the hands of the Grandees. Each of the four men refused to answer interrogatories that would have incriminated himself ... , Lilburne and Overton ... denying the legality of both the Rump and the Council of State. Lilburne was permitted to make a long speech pointing out that it was not in the power of Parliament to execute the laws, denying the power of the Council to imprison him in a military prison, and threatening to burn the very military prison they should consign him to. Looking fixedly at Cromwell, Lilburne said, "I must be plain with you, I have not found so much Honor, Honesty, Justice, or Conscience, in any of the principal Officers of the Army, as to trust my life under their protection, or think it can be safe under their immediate fingers." After Overton, Prince, and Walwyn had been questioned, Lilburne put his ear to the door of the chamber: "I ... heard Lieutenant General Cromwell (I am sure of it) very loud, thumping his fist up the Council Table, til it rang again, and heard him speak in these very words, or to this effect;<em> I tell you Sir, you have no other Way to deal with these men, but to break them in pieces</em>; and thumping upon the Council Table again, he said Sir,<em> let me tell you; yea, and bring all the guilt of blood and treasure shed and spent in this Kingdom upon your heads and shoulders; and frustrate and make void all that work, that with so many years industry, toil and pains you have done, and so render you to all rational men in the world, as the most contemptible generation of silly, low spirited men in the earth</em>."<a class="see-footnote" id="footnoteref69_d3jp8gk" title="Ibid., pp. 100-101." href="#footnote69_d3jp8gk">69</a></p>
<p>Such was the strength of the Leveller movement, that Cromwell had to resort to outright repression in order to maintain his position.</p>
<p>In his narrative in <em>The Council of State</em>, Overton describes the rough and abusive treatment that he and his friends received during the raid upon his living quarters. Always ready to assert his legal rights, he demanded to see the warrant for his arrest and to see the search warrant authorizing inva­sion of his quarters. When he was finally brought before the Council of State, he again demanded the production of their authority to detain him for questioning. He unequivocally refused to answer their questions:</p>
<p class="indent2">Gentlemen, it is well known, and that unto your selves, that in cases criminal, as now you pretend against me, it is against the fundamental Laws of this Commonwealth to proceed against any man by way of Interrogatories against himself, as you do against me. ... So that for my part, Gentlemen, I do utterly refuse to make answer unto any thing in relation to my own person, or any man or men under heaven; but do humbly desire, that if you intend by way of Charge to proceed to any Trial of me, that it may be (as before I desired at your hands) by the known established Laws of England, in some ordinary Court of Justice appointed for such cases (extraordinary ways never being used, but abominated, where ordinary ways may be had) and I shall freely submit to what can be legally made good against me.<a class="see-footnote" id="footnoteref70_sbd22fh" title="Overton, A Picture of the Council of State, in Haller and Davies, The Leveller Tracts, p. 223." href="#footnote70_sbd22fh">70</a></p>
<p>Besides claiming a privilege against self-incrimination, Overton also pointed out that he was innocent until proven guilty and that <em>ex post facto</em> laws could have no bearing on his particular case.</p>
<p class="indent2">I am guilty of nothing, not of this paper, entitled <em>The Second Part of Englands New Chains</em>, in case I had never so much an hand in it, till it be legally proved: for the Law looks upon no man to be guilty of any crime, till by law he be convicted; so that I cannot esteem myself guilty of any thing, till by the Law you have made the same good against me.</p>
<p class="indent2">And further Sir, I desire you to take notice, that I cannot be guilty of the transgression of any Law. before that Law be in being; it is impos­sible to offend that which is not; Where there is no Law there is no Transgression: Now, those Votes on which you proceed against me are but of yesterdays being; so that, had I an hand in that Book whereof you accuse me, provided it were before those Votes, you cannot render me guilty by those Votes.<a class="see-footnote" id="footnoteref71_r4518ja" title="Ibid., p. 224." href="#footnote71_r4518ja">71</a></p>
<p>Even though he was facing the possibility of a second imprisonment, Overton was as defiant and belligerent as ever, declaring that he could never coexist with oppression:</p>
<p class="indent2">It is well known, and I think to some here [before the Council of State), that I have ever been an opposer of oppression and tyranny .... I sup­pose no man can accuse me, but that I have opposed Tyranny where­ever I have found it: It is all one to me under what name, or title soever oppression be exercised, whether under the name of King, Parliament, Council of State, under the name of this, or that, or any thing else; For tyranny and oppression is tyranny and oppression to me where-ever I find it, and where-ever I find it I shall oppose it, without respect of persons.</p>
<p class="indent2">I know I am mortal and finite, and by the course of nature my days must have a period, how soon I know not; and the most you can do, it is but to proceed to life; and for my part, I had rather die in the just vin­dication of the poor oppressed people of this Commonwealth, then to die in my bed; and the sooner it is. the welcomer, I care not if it were at this instant, for I value not what you can do unto me.<a class="see-footnote" id="footnoteref72_59yqry8" title="Ibid., pp. 224-25." href="#footnote72_59yqry8">72</a></p>
<p>Despite their eloquent pleas for freedom, the Leveller leaders were kept in prison.</p>
<p>It was probably next to impossible to stifle the outbursts of such men as Lilburne and Overton, and from prison they soon published another declaration, <em>A Manifestation</em>, (April 14, 1649), which, although apparently written in the main by Walwyn, reflected the ideas of all four prisoners. The Levellers were concerned to demonstrate that they were not to be associated with the communal land diggers and that they did not preach chaotic anar­chy, although they were firmly opposed to the military government of Cromwell. Walwyn therefore attempted to defend the Levellers' course of action during the Civil War. The Levellers had engaged in political activity out of self-defense, but they were concerned to show that their own politics would not end up in an oppressive government, were they to succeed. This of course is a danger inherent in all radical political parties: that they can end up replacing one set of oppressions with another.</p>
<p class="indent2">And whereas it is urged, That if we were in power, we would bear ourselves as Tyrannically as others have done: We confess indeed, that the experimental defections of so many men as have succeeded in Authority, and the exceeding difference we have hitherto found in the same men in a low, and in an exalted condition, makes us even mistrust our own hearts, and hardly believe our own Resolutions of the contrary. And therefore we have proposed such an Establishment, as supposing men to be too flexible and yielding to worldly Temptations, they should not yet have a means or opportunity either to injure particulars, or prejudice the Public, without extreme hazard, and apparent danger to themselves. Besides, to the objection we have further to say, That we aim not at power in our selves, our Principles and Desires being in no measure of self-concernment: no do we rely for obtaining the same upon strength, or a forcible obstruction; but solely upon that inbred and persuasive power that is all good and just things, to make their own way in the hearts of men, and so to procure their own Establishments.<a class="see-footnote" id="footnoteref73_bogfgqu" title="Overton, A Manifestation, p. 394." href="#footnote73_bogfgqu">73</a></p>
<p><em>A Manifestation</em> ends on a conciliatory note by referring to the revision of the Agreement of the People, which the Leveller leaders were preparing. The Agreement would allow the world to see what the Leveller movement was about, and if accepted would lead to peace.</p>
<p class="indent2">And thus the world may clearly see what we are, and what we aim at: We are altogether ignorant, and do from our hearts abominate all de­signs and contrivances of dangerous consequence which we are said (but God knows, untruly) to be laboring withall. Peace and Freedom is our Design; by War we were never gainers, nor ever wish to be; and under bondage we have been hitherto sufferers. We desire, however, that What is past may be forgotten, provided the Commonwealth may have amends made it for the time to come. And this from our soul we desire.<a class="see-footnote" id="footnoteref74_ex7yz0o" title="Ibid., p. 396." href="#footnote74_ex7yz0o">74</a></p>
<p>On May I, 1649, Lilburne, Walwyn, Prince, and Overton, still prisoners in the Tower of London, published their revision of <em>An Agreement of the Free People of England. Tendered as a Peace Offering to This Distressed Nation</em>. The <em>Agreement </em>was composed of thirty articles and incorporated all the Leveller demands as taken from their most important petitions.<a class="see-footnote" id="footnoteref75_pfx90ry" title="Wolfe, Leveller Manifestoes, p. 397." href="#footnote75_pfx90ry">75</a> In the <em>Agreement </em>they display a profound distrust of authoritarian power but do place a great amount of confidence in the judgment of the voting public. In the <em>Agreement </em>are such libertarian planks as:</p>
<p class="indent2">XI. We do not empower them [the representatives in Parliament) to impress or constrain any person to serve in war by Sea or Land every mans Conscience being to be satisfied in the justness of that cause wherein he hazards his own life, or may destroy an others.</p>
<p class="indent2">XVI. We agree and Declare That it shall not be in the power of any Representative to punish or cause to be punished, any person or persons for refusing to answer questions against themselves in Criminal cases.</p>
<p class="indent2">XVIII. That it shall not be in their power to continue or make any Laws to abridge or to hinder any person or persons from trading or mer­chandizing in to any place beyond the Seas, where any of this Nation are free to Trade.</p>
<p class="indent2">XIX. That it shall not be in their power to continue Excise or Customs upon any sort of Food or any other Goods, Wares, or Commodities ....</p>
<p class="indent2">XX. That it shall not be in their power to make or continue any Law, whereby mens real or personal estates, or any part thereof, shall be exempted from payment of their debts; or to imprison any person for debt of any nature, it being both unchristian in itself, and no advantage to the Creditors, and both a reproach and a prejudice to the Common­wealth.</p>
<p class="indent2">XXI. That it shall not be in their power to make or continue any Law, for taking away any mans life, except for murder, or other like heineous offenses destructive to human Society, or for endeavoring by force to destroy this Agreement, but shall use their uttermost endeavors to ap­point punishments equal to offenses: that so mens Lives, Limbs, Liberties, and estates, may not be liable to be taken away upon trivial or slight occasions as they have been; ... and in all other capital offenses recompense shall be made to the parties damnified, as well out of the estate of the Malefactor, as by loss of life, according to the conscience of his jury.<a class="see-footnote" id="footnoteref76_72z11mh" title="Lilburne, Walwyn, Prince and Overton, An Agreement of the Free People of England, in ibid., pp. 405-407." href="#footnote76_72z11mh">76</a></p>
<p>Overton was kept in the Tower until November 1649, and during that time he published two pamphlets in support of the Agreement of the People. The first was titled <em>Overton's Defiance of the Act of Pardon</em> (July 2, 1649), and the second was <em>The Baiting of the Bull of Bashan</em> (July 9, 1649). In the first Overton makes it clear that the <em>Agreement </em>is the summation and goal of his political activities. In his estimation, no sacrifice would be too great, so long as it was adopted:</p>
<p class="indent2">My Friends, of this therefore be you confident, that my silence has not proceeded from any degeneration or instability in me to that <em>Righteous Cause</em> (summed up in our draft of an Agreement of the people, sub­scribed, published, and offered by us four as a peace offering, to the consideration of the people of England, May 1, 1649) that Paper (or rather the contents or premises thereof) is the price, glory, and end of my endurance, neither life, liberty or reparation or any thing that man or earth affords is valuable with me in comparison thereof, that is my <em>all in all</em>; I desire neither life, liberty or reparation (seeing God has called me to the work) but as it may stand in subordination to that Agreement; while I have life or breath it shall never want a truer asserter to uphold and promote the same to the utmost of my power, let the hazard and danger to myself be what it will ... for that Agreement, I will have, or else I'll die at their feet; I'll have no accord or peace with them at all till they have yielded that: whether at liberty or in prison, it is all one to me.<a class="see-footnote" id="footnoteref77_iaejplo" title="Overton, Overton's Defiance of the Act of Pardon (1949), pp. 4-5. Copy from the Huntington Library Collection." href="#footnote77_iaejplo">77</a></p>
<p>It was Overton's belief that without the <em>Agreement </em>there would be no security for either person or property in the Commonwealth. He makes it plain that he does not trust Cromwell and the army grandees. ("I'll trust them no further than I can fling their great Bull of Bashan by the tail."<a class="see-footnote" id="footnoteref78_x3a2p7o" title="Ibid., p. 7." href="#footnote78_x3a2p7o">78</a>) He exhorts those Levellers still at liberty to promote the Agreement and not to expect that their four imprisoned leaders can "remove mountains"; at least not without their help.</p>
<p>Apparently the Leveller prisoners had been offered a pardon, on terms which Overton found quite unacceptable. In the <em>Defiance of the Act of Pardon</em> Overton also laments the defection of former comrades from the ranks of the Levellers into the arms of Cromwell's faction. Referring to himself as "little brisk Levelling <em>Dick </em>in the Tower," Overton makes it clear to both his followers and opponents that he will not dishonor himself or the cause by renouncing the Agreement or changing factions:</p>
<p class="indent2">Therefore know all men by these presents, that I <em>Richard Overton</em> ... out of a tender regard that I have to the Liberties of my Country, and credit of that honorable cause, do hereby defy, renounce, abhor, detest and scorn that Act of Pardon as to my Liberty thereby, and do rather choose continuance and increase of Bonds, than conditional submission or assent thereunto in the least: ... I am so far from submission to their corrupt and wicked interest, that I will first eat the flesh off from my bones; first rot and perish in Gaol, before I will so far bow to them, as in the least to woo them or any of their creatures, either directly or indirectly in person or by proxy for my liberty: my cause is not bad, but with patience I can suffer till I be justly delivered without blemish or speck of infamy to the same; the honor of it, I honor above my life or liberty.</p>
<p>In the <em>Defiance</em>, Overton had used some rather strong and vulgar lan­guage, and in <em>The Baiting of the Bull</em> he continues on with its use, incor­porating it into some pointed and satirical metaphors. Although the Agree­ment was not meeting with much popular acceptance, Overton believed that undue gravity and melancholy in the Levellers' cause was wrong. It was his opinion that "modest mirth tempered with due gravity makes the best composition."<a class="see-footnote" id="footnoteref79_f75wbrt" title="Overton, The Baiting of the Great Bull of Bashan (1649), p. 3. Copy from the Huntington Library collection." href="#footnote79_f75wbrt">79</a> And he later adds, that "one pennyworth of the <em>Agreement of the People</em>, with a little good resolution taken morning and evening, will work out this corruption, cleanse, and purify the blood."<a class="see-footnote" id="footnoteref80_b0h828x" title="Ibid., pp. 2-3." href="#footnote80_b0h828x">80</a> His earlier pamphlet, he says, seemed but "as music to the house of Mourning" and did not seem to rouse the Levellers to action. He points out a common charac­teristic of political movements, that "When there is anything of venture or hazard, while tis in the <em>Embryo</em>, who is not then but busy and forward [promoting it]? but when tis put upon the personal test for execution, Oh then one has bought a piece of ground, and must be excused; another a yoke of Oxen, and he must go see them; and a third has married a wife."<a class="see-footnote" id="footnoteref81_rj61kaa" title="Ibid., p. 4." href="#footnote81_rj61kaa">81</a> Yet he believes that if the ordinary Leveller saw a person threatened with danger, he would not hesitate to venture his own life in order to save the other. Why then are the Levellers unwilling to aid their own political cause? As Overton points out, there is much more at risk in the triumph of their cause than in the rescue of a single person:</p>
<p class="indent2">Our cause is of a more transcendent value, and we suffer for it; and can you see it destroyed in us, and we for it, and not be as natural as in a private relation? the lives, liberties and freedoms of <em>all </em>is contained in <em>it</em>? If your neighbors Ox or his Ass were in a ditch, it is a shame to pass by and not to help; and behold, here's <em>all in the ditch</em>, then, why venture you not your time, your labors, your moneys, etc. to redeem our all, <em>our Cause</em>, the nation, and us <em>in it</em>, and <em>with it</em>.<a class="see-footnote" id="footnoteref82_2londpf" title="Ibid., p. 6." href="#footnote82_2londpf">82</a></p>
<p>Overton was eventually released from the Tower in November 1649, when Lilburne was placed on trial. Although acquitted, Lilburne and the Leveller movement had reached their zenith and were literally spent. Little record is left of the activities of Overton after he was freed. There is record of his involvement in spying and fomenting rebellion against the Protector­ate, and in 1659 he was again in prison. In 1663, he was ordered arrested for printing material contrary to the government of Charles II.<a class="see-footnote" id="footnoteref83_tltziok" title="C. H. Firth, Dictionary of National Biography (London: Oxford University Press, 1967-68), 14:1281. Firth's "Richard Overton" entry, from which this reference is made, lists Overton's writings and gives a picture of his tumultuous life." href="#footnote83_tltziok">83</a><br />Overton's pamphlets certainly offer a unique autobiographical assess­ment and perspective of the Leveller movement. Richard Overton, in both word and deed, was a fearless man, true to his ideals of justice, without regard for personal consequence. The words of another Leveller, contem­porary to him, perhaps best epitomize Overton's spirit:</p>
<p class="indent2">Had they [the Levellers] counted the cost, the difficulty when they had taken up arms against the king? They were bound, ... not by difficulties but by justice. Though death lay ahead, and the sea on three sides, they should unflinchingly carry on. Whatever great leap the Agreement called for, [they] should have no fear: "When I leap I shall take so much of God with me, and so much of just and right, as I shall jump sure."<a class="see-footnote" id="footnoteref84_k85l7cj" title="Wolfe, Leveller Manifestoes, p. 54. A more recent collection of Leveller documents, which re-sparked my interest in the Leveller movement is G. E. Aylmer, ed., The Levellers in the English Revolution (Ithaca, N.Y.: Cornell University Press, 1975). Further interpretation of the movement can be found in Henry Holorenshaw, The Levellers and the English Revolution (London: Victor Gollancz, 1939). Two (less helpful) articles which have come to my attention are: Iain Hampsher-Monk, "The Political Theory of the Levellers," Political Studies 24, no. 4 (1976): 397-422; and J.C. Davis, "The Levellers and Christianity," in Brian Manning, ed., Politics, Religion, and the English Civil War (New York: St. Martin's Press, 1973), pp. 225-50. While it does not appear that any biography has been written detailing the life of Richard Overton, there are several studies of the life and thought of John Lilburne, Leveller leader. Two biographies that I referred to are: M. A. Gibb, John Lilburne (London: Lindsay Drummond, 1947); and Pauline Gregg, Free-born John (London: Harrap Publishers, 1961). The reader is referred to the National Union Catalog, Pre-1956 lmprints, vol. 435, in which the listings under Mary and Richard Overton provide the names and locations of their material in the U. S. " href="#footnote84_k85l7cj">84</a></p>
<ul class="footnotes"><li class="footnote" id="footnote1_97spnb0"><a class="footnote-label" href="#footnoteref1_97spnb0">1.</a> H. N. Brailsford, <em>The Levellers and the English Revolution</em> (London: Cresset Press, 1961), p. 418. There is a wide disparity in secoridary, historical interpretations of the Leveller movement. Probably the two most individualistic interpretations of the Levellers are this book by Brailsford and one by C. B. Macpherson, <em>Political Theory of Possessive In­dividualism</em> (Oxford: Clarendon Press, 1962).</li>
<li class="footnote" id="footnote2_tu4xn3g"><a class="footnote-label" href="#footnoteref2_tu4xn3g">2.</a> Howard Shaw, <em>The Levellers</em> (London: Longmans Green and Co., 1968), p. 102. See also Brailsford, <em>The Levellers and the English Revolution</em>, pp. 549-550.</li>
<li class="footnote" id="footnote3_esxm776"><a class="footnote-label" href="#footnoteref3_esxm776">3.</a> Brailsford, <em>The Levellers and the English Revolution</em>, pp. 379-380.</li>
<li class="footnote" id="footnote4_r7p0syi"><a class="footnote-label" href="#footnoteref4_r7p0syi">4.</a> Ibid. p. 550.</li>
<li class="footnote" id="footnote5_co4aklp"><a class="footnote-label" href="#footnoteref5_co4aklp">5.</a> D. B. Robertson, <em>The Religious Foundations of Leveller Democracy</em> (New York: Kings Crown Press, 1951), p. 74.</li>
<li class="footnote" id="footnote6_znpj9i7"><a class="footnote-label" href="#footnoteref6_znpj9i7">6.</a> Richard Overton, <em>A Manifestation</em>, in Don M. Wolfe, ed., <em>Leveller Manifestoes of the Puritan Revolution</em> (New York: Thomas Nelson and Sons, 1944), p. 391. This is one of several collections of Leveller documents which are indispensable to the study of the general movement. Others include: William Haller and Godfrey Davies, eds., <em>The Leveller Tracts, 1647-1653</em> (New York: Columbia University Press, 1944); William Haller, ed., <em>Tracts on Liberty in the Puritan Revolution, 1638-1647</em>, 3 vols. (New York: Columbia University Press, 1934); and A. S. P. Woodhouse, ed., <em>Puritianism and Liberty Being the Army Debates, 1647-9</em>, Clarke Manuscripts (Chicago: University of Chicago Press, 1951).</li>
<li class="footnote" id="footnote7_mbcqt14"><a class="footnote-label" href="#footnoteref7_mbcqt14">7.</a> Robertson, <em>Religious Foundations</em>, p. 73.</li>
<li class="footnote" id="footnote8_qwz9re8"><a class="footnote-label" href="#footnoteref8_qwz9re8">8.</a> Perez Zagorin, <em>A History of Political Thought in the English Revolution</em> (London: Routledge and Kegan Paul, 1954), p. 41.</li>
<li class="footnote" id="footnote9_a3gdg0e"><a class="footnote-label" href="#footnoteref9_a3gdg0e">9.</a> See Robertson, <em>Religious Foundations</em>, pp. 76-81.</li>
<li class="footnote" id="footnote10_rluh1aq"><a class="footnote-label" href="#footnoteref10_rluh1aq">10.</a> Ibid., p. 77.</li>
<li class="footnote" id="footnote11_zjnbkqr"><a class="footnote-label" href="#footnoteref11_zjnbkqr">11.</a> Brailsford, <em>The Levellers and the English Revolution</em>, pp. 457-58.</li>
<li class="footnote" id="footnote12_6gll4aj"><a class="footnote-label" href="#footnoteref12_6gll4aj">12.</a> Ibid., pp. 498-506.</li>
<li class="footnote" id="footnote13_kehl8op"><a class="footnote-label" href="#footnoteref13_kehl8op">13.</a> Ibid., p. 384.</li>
<li class="footnote" id="footnote14_dotw2e4"><a class="footnote-label" href="#footnoteref14_dotw2e4">14.</a> Ibid., p. 264.</li>
<li class="footnote" id="footnote15_qekfoyg"><a class="footnote-label" href="#footnoteref15_qekfoyg">15.</a> Woodhouse, "Introduction," <em>Puritanism and Liberty</em>, p. 28.</li>
<li class="footnote" id="footnote16_zezula7"><a class="footnote-label" href="#footnoteref16_zezula7">16.</a> Ibid., "Introduction," p. 91.</li>
<li class="footnote" id="footnote17_eagpeo3"><a class="footnote-label" href="#footnoteref17_eagpeo3">17.</a> Ibid., "Putney Debates," p. 75.</li>
<li class="footnote" id="footnote18_c4hfi23"><a class="footnote-label" href="#footnoteref18_c4hfi23">18.</a> Ibid., "Introduction," p. 91.</li>
<li class="footnote" id="footnote19_07upb6w"><a class="footnote-label" href="#footnoteref19_07upb6w">19.</a> Brailsford, <em>The Levellers and the English Revolution</em>, p. 315.</li>
<li class="footnote" id="footnote20_pt3fyq1"><a class="footnote-label" href="#footnoteref20_pt3fyq1">20.</a> Macpherson, <em>Political Theory</em>, p. 152.</li>
<li class="footnote" id="footnote21_0rxer4t"><a class="footnote-label" href="#footnoteref21_0rxer4t">21.</a> Brian Manning, <em>The English People and the English Revolution, 1640-1649</em> (London: Hennemann Publishers, 1976), p. 296.</li>
<li class="footnote" id="footnote22_xhmzbt6"><a class="footnote-label" href="#footnoteref22_xhmzbt6">22.</a> Ibid., p. 295.</li>
<li class="footnote" id="footnote23_jlxiihz"><a class="footnote-label" href="#footnoteref23_jlxiihz">23.</a> Quoted in Robertson, <em>The Religious Foundations</em>, p. 87.</li>
<li class="footnote" id="footnote24_jdkzxd6"><a class="footnote-label" href="#footnoteref24_jdkzxd6">24.</a> Overton, <em>A Manifestation</em>, pp. 390-91.</li>
<li class="footnote" id="footnote25_ltulchq"><a class="footnote-label" href="#footnoteref25_ltulchq">25.</a> Macpherson, <em>Political Theory</em>, p. 138.</li>
<li class="footnote" id="footnote26_tbbgjn7"><a class="footnote-label" href="#footnoteref26_tbbgjn7">26.</a> See Macpherson's discussion in ibid., pp. 137-57.</li>
<li class="footnote" id="footnote27_k82tjn4"><a class="footnote-label" href="#footnoteref27_k82tjn4">27.</a> Overton, <em>An Arrow Against All Tyrants</em> (1646), pp. 3-4. Copy from the Huntington Library collection. I would like to thank Carey Bliss, Curator of Rare Books and Manu­scripts at the Henry E. Huntington Library, San Marino, Calif., who was most helpful in supplying copies of documents in the collection. I also obtained a copy of <em>An Arrow</em> from Duke University, Durham, N.C. It has also been reprinted by the Rota Press of the Uni­versity of Exeter, England (ISBN 0-904617-05X).<br /> The same quotation also appears in Macpherson, <em>Political Theory</em>, pp. 140-41.</li>
<li class="footnote" id="footnote28_rws3z4r"><a class="footnote-label" href="#footnoteref28_rws3z4r">28.</a> Overton, <em>An Appeal from the Degenerate Representative Body</em>, in Wolfe, Leveller Manijestoes, pp. 162-63. The same quotation appears in Macpherson, <em>Political Theory</em>, p. 141.</li>
<li class="footnote" id="footnote29_m7mzq9a"><a class="footnote-label" href="#footnoteref29_m7mzq9a">29.</a> Haller, <em>Tracts on Liberty</em>, 1:114.</li>
<li class="footnote" id="footnote30_sfqchrj"><a class="footnote-label" href="#footnoteref30_sfqchrj">30.</a> Macpherson, <em>Political Theory</em>, p. 142.</li>
<li class="footnote" id="footnote31_q7g258l"><a class="footnote-label" href="#footnoteref31_q7g258l">31.</a> Overton, <em>A Remonstrance of Many Thousand Citizens</em>, in Wolfe, <em>Leveller Manifestoes</em>, pp. 113-30.</li>
<li class="footnote" id="footnote32_dkfw8yn"><a class="footnote-label" href="#footnoteref32_dkfw8yn">32.</a> Ibid., p. 113.</li>
<li class="footnote" id="footnote33_xq6aniz"><a class="footnote-label" href="#footnoteref33_xq6aniz">33.</a> Ibid., pp. 114-15.</li>
<li class="footnote" id="footnote34_5g1nmhq"><a class="footnote-label" href="#footnoteref34_5g1nmhq">34.</a> Ibid., p. 122.</li>
<li class="footnote" id="footnote35_t11aw73"><a class="footnote-label" href="#footnoteref35_t11aw73">35.</a> Ibid., p. 124.</li>
<li class="footnote" id="footnote36_p5etfjf"><a class="footnote-label" href="#footnoteref36_p5etfjf">36.</a> Ibid., p. 125.</li>
<li class="footnote" id="footnote37_c8tzopz"><a class="footnote-label" href="#footnoteref37_c8tzopz">37.</a> Ibid., pp. 126-27.</li>
<li class="footnote" id="footnote38_3yox5ea"><a class="footnote-label" href="#footnoteref38_3yox5ea">38.</a> Overton, <em>An Aarum to the House of Lords</em> (1646), p. 6. Copy from the Huntington Library collection.</li>
<li class="footnote" id="footnote39_glq1ch2"><a class="footnote-label" href="#footnoteref39_glq1ch2">39.</a> Ibid., pp. 6-7.</li>
<li class="footnote" id="footnote40_yese9xy"><a class="footnote-label" href="#footnoteref40_yese9xy">40.</a> Overton, <em>A Defiance Against All Arbitrary Usurpations</em> (1646), p. 6. From the Huntington Library collection. The title of this essay ... "Come What, Come Will," is taken from <em>A Defiance</em>, p. 13.</li>
<li class="footnote" id="footnote41_d84g6n6"><a class="footnote-label" href="#footnoteref41_d84g6n6">41.</a> See Leonard Levy, <em>The Origins of the Fifth Amendment</em> (New York: Oxford University Press, 1968), pp. 293-300.</li>
<li class="footnote" id="footnote42_j4ucq01"><a class="footnote-label" href="#footnoteref42_j4ucq01">42.</a> Overton, <em>An Arrow</em>, p. 9.</li>
<li class="footnote" id="footnote43_ke1rqhi"><a class="footnote-label" href="#footnoteref43_ke1rqhi">43.</a> Overton, <em>Commoners Complaint</em> (1647), p. 3. Copy from the Huntington Library collection.</li>
<li class="footnote" id="footnote44_sp0gtsk"><a class="footnote-label" href="#footnoteref44_sp0gtsk">44.</a> Ibid., pp. 4-5.</li>
<li class="footnote" id="footnote45_sg0wd44"><a class="footnote-label" href="#footnoteref45_sg0wd44">45.</a> Ibid., p. 6.</li>
<li class="footnote" id="footnote46_9gyi0jk"><a class="footnote-label" href="#footnoteref46_9gyi0jk">46.</a> Ibid.</li>
<li class="footnote" id="footnote47_qjb3n2j"><a class="footnote-label" href="#footnoteref47_qjb3n2j">47.</a> Ibid., pp. 9-10.</li>
<li class="footnote" id="footnote48_50rnoru"><a class="footnote-label" href="#footnoteref48_50rnoru">48.</a> Ibid., p. 10.</li>
<li class="footnote" id="footnote49_0a7rg6e"><a class="footnote-label" href="#footnoteref49_0a7rg6e">49.</a> Ibid., pp. 12-13.</li>
<li class="footnote" id="footnote50_jy8i5wq"><a class="footnote-label" href="#footnoteref50_jy8i5wq">50.</a> Ibid., p. 13.</li>
<li class="footnote" id="footnote51_563lf4d"><a class="footnote-label" href="#footnoteref51_563lf4d">51.</a> Ibid., p. 14.</li>
<li class="footnote" id="footnote52_sunnu73"><a class="footnote-label" href="#footnoteref52_sunnu73">52.</a> Ibid., pp. 15-16.</li>
<li class="footnote" id="footnote53_0nm0oiq"><a class="footnote-label" href="#footnoteref53_0nm0oiq">53.</a> Ibid., p. 16.</li>
<li class="footnote" id="footnote54_udu63se"><a class="footnote-label" href="#footnoteref54_udu63se">54.</a> Ibid., p. 17.</li>
<li class="footnote" id="footnote55_xeuqan4"><a class="footnote-label" href="#footnoteref55_xeuqan4">55.</a> Ibid., p. 18.</li>
<li class="footnote" id="footnote56_fg7z3kd"><a class="footnote-label" href="#footnoteref56_fg7z3kd">56.</a> Ibid., p. 19.</li>
<li class="footnote" id="footnote57_mg6muhl"><a class="footnote-label" href="#footnoteref57_mg6muhl">57.</a> Ibid., pp. 22-23.</li>
<li class="footnote" id="footnote58_0p4utoq"><a class="footnote-label" href="#footnoteref58_0p4utoq">58.</a> Mary Ovenon, <em>The Humble Appeal and Petition of Mary Overton</em> (1647), p. 12. Copy from Temple University, Philadelphia.</li>
<li class="footnote" id="footnote59_l8u9bgp"><a class="footnote-label" href="#footnoteref59_l8u9bgp">59.</a> Richard Overton, <em>An Appeal,</em> p. 158.</li>
<li class="footnote" id="footnote60_btig2f6"><a class="footnote-label" href="#footnoteref60_btig2f6">60.</a> Ibid., p. 161.</li>
<li class="footnote" id="footnote61_tp97x5j"><a class="footnote-label" href="#footnoteref61_tp97x5j">61.</a> Ibid., p. 162.</li>
<li class="footnote" id="footnote62_hbwhro3"><a class="footnote-label" href="#footnoteref62_hbwhro3">62.</a> Ibid., pp. 176-78.</li>
<li class="footnote" id="footnote63_b4in15l"><a class="footnote-label" href="#footnoteref63_b4in15l">63.</a> Ibid., p. 180.</li>
<li class="footnote" id="footnote64_3a24uaa"><a class="footnote-label" href="#footnoteref64_3a24uaa">64.</a> Ibid., p. 182.</li>
<li class="footnote" id="footnote65_lf76w63"><a class="footnote-label" href="#footnoteref65_lf76w63">65.</a> Ibid., p. 188.</li>
<li class="footnote" id="footnote66_izcp1yx"><a class="footnote-label" href="#footnoteref66_izcp1yx">66.</a> Overton, <em>The Hunting of the Foxes</em>, in Wolfe, <em>Leveller Manifestoes</em>, pp. 355-83.</li>
<li class="footnote" id="footnote67_idpj7zy"><a class="footnote-label" href="#footnoteref67_idpj7zy">67.</a> Ibid., p. 94.</li>
<li class="footnote" id="footnote68_xs0ps2j"><a class="footnote-label" href="#footnoteref68_xs0ps2j">68.</a> Ibid., pp. 99-100.</li>
<li class="footnote" id="footnote69_d3jp8gk"><a class="footnote-label" href="#footnoteref69_d3jp8gk">69.</a> Ibid., pp. 100-101.</li>
<li class="footnote" id="footnote70_sbd22fh"><a class="footnote-label" href="#footnoteref70_sbd22fh">70.</a> Overton, <em>A Picture of the Council of State</em>, in Haller and Davies, <em>The Leveller Tracts</em>, p. 223.</li>
<li class="footnote" id="footnote71_r4518ja"><a class="footnote-label" href="#footnoteref71_r4518ja">71.</a> Ibid., p. 224.</li>
<li class="footnote" id="footnote72_59yqry8"><a class="footnote-label" href="#footnoteref72_59yqry8">72.</a> Ibid., pp. 224-25.</li>
<li class="footnote" id="footnote73_bogfgqu"><a class="footnote-label" href="#footnoteref73_bogfgqu">73.</a> Overton, <em>A Manifestation</em>, p. 394.</li>
<li class="footnote" id="footnote74_ex7yz0o"><a class="footnote-label" href="#footnoteref74_ex7yz0o">74.</a> Ibid., p. 396.</li>
<li class="footnote" id="footnote75_pfx90ry"><a class="footnote-label" href="#footnoteref75_pfx90ry">75.</a> Wolfe, <em>Leveller Manifestoes</em>, p. 397.</li>
<li class="footnote" id="footnote76_72z11mh"><a class="footnote-label" href="#footnoteref76_72z11mh">76.</a> Lilburne, Walwyn, Prince and Overton, <em>An Agreement of the Free People of England</em>, in ibid., pp. 405-407.</li>
<li class="footnote" id="footnote77_iaejplo"><a class="footnote-label" href="#footnoteref77_iaejplo">77.</a> Overton, <em>Overton's Defiance of the Act of Pardon</em> (1949), pp. 4-5. Copy from the Huntington Library Collection.</li>
<li class="footnote" id="footnote78_x3a2p7o"><a class="footnote-label" href="#footnoteref78_x3a2p7o">78.</a> Ibid., p. 7.</li>
<li class="footnote" id="footnote79_f75wbrt"><a class="footnote-label" href="#footnoteref79_f75wbrt">79.</a> Overton, <em>The Baiting of the Great Bull of Bashan</em> (1649), p. 3. Copy from the Huntington Library collection.</li>
<li class="footnote" id="footnote80_b0h828x"><a class="footnote-label" href="#footnoteref80_b0h828x">80.</a> Ibid., pp. 2-3.</li>
<li class="footnote" id="footnote81_rj61kaa"><a class="footnote-label" href="#footnoteref81_rj61kaa">81.</a> Ibid., p. 4.</li>
<li class="footnote" id="footnote82_2londpf"><a class="footnote-label" href="#footnoteref82_2londpf">82.</a> Ibid., p. 6.</li>
<li class="footnote" id="footnote83_tltziok"><a class="footnote-label" href="#footnoteref83_tltziok">83.</a> C. H. Firth, <em>Dictionary of National Biography</em> (London: Oxford University Press, 1967-68), 14:1281. Firth's "Richard Overton" entry, from which this reference is made, lists Overton's writings and gives a picture of his tumultuous life.</li>
<li class="footnote" id="footnote84_k85l7cj"><a class="footnote-label" href="#footnoteref84_k85l7cj">84.</a> Wolfe, <em>Leveller Manifestoes</em>, p. 54.<br /> A more recent collection of Leveller documents, which re-sparked my interest in the Leveller movement is G. E. Aylmer, ed., <em>The Levellers in the English Revolution</em> (Ithaca, N.Y.: Cornell University Press, 1975). Further interpretation of the movement can be found in Henry Holorenshaw, <em>The Levellers and the English Revolution</em> (London: Victor Gollancz, 1939). Two (less helpful) articles which have come to my attention are: Iain Hampsher-Monk, "The Political Theory of the Levellers," <em>Political Studies</em> 24, no. 4 (1976): 397-422; and J.C. Davis, "The Levellers and Christianity," in Brian Manning, ed., <em>Politics, Religion, and the English Civil War </em>(New York: St. Martin's Press, 1973), pp. 225-50.<br /> While it does not appear that any biography has been written detailing the life of Richard Overton, there are several studies of the life and thought of John Lilburne, Leveller leader. Two biographies that I referred to are: M. A. Gibb, <em>John Lilburne</em> (London: Lindsay Drummond, 1947); and Pauline Gregg, <em>Free-born John</em> (London: Harrap Publishers, 1961).<br /> The reader is referred to the <em>National Union Catalog</em>, Pre-1956 lmprints, vol. 435, in which the listings under Mary and Richard Overton provide the names and locations of their material in the U. S.<br /><br /><br /><br /><br /><br /><br /><br /> </li>
</ul>Carl Watner "Come What, Come Will!" Richard Overton, Libertarian Leveller<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/JLS_Logo_3_20141029.jpg?itok=HTmr1Has" width="240" alt="The Journal of Libertarian Studies" title="The Journal of Libertarian Studies" />18516September 29, 2018 - 2:00 PMInterventionismThe Myth of the Failure of Capitalismhttps://mises.org/node/5955
<div class="editorial-preface"><p><em>[This essay was originally published as "Die Legende von Versagen des Kapitalismus" in Der Internationale Kapitalismus und die Krise, Festschrift für Julius Wolf (1932</em>)<a class="see-footnote" id="footnoteref1_08io1hz" title="This essay was translated from the German by Jane E. Sanders, who wishes to gratefully acknowledge the comments and suggestions of Professor John T. Sanders, Rochester Institute of Technology, and Professor David R. Henderson, University of Rochester, in the preparation of the translation." href="#footnote1_08io1hz">1</a></p></div>
<div class="figure"><em> </em></div>
<p>The nearly universal opinion expressed these days is that the economic crisis of recent years marks the end of capitalism. Capitalism allegedly has failed, has proven itself incapable of solving economic problems, and so mankind has no alternative, if it is to survive, then to make the transition to a planned economy, to socialism.</p>
<p>This is hardly a new idea. The socialists have always maintained that economic crises are the inevitable result of the capitalistic method of production and that there is no other means of eliminating economic crises than the transition to socialism. If these assertions are expressed more forcefully these days and evoke greater public response, it is not because the present crisis is greater or longer than its predecessors, but rather primarily because today public opinion is much more strongly influenced by socialist views than it was in previous decades.</p>
<h4>1.</h4>
<p>When there was no economic theory, the belief was that whoever had power and was determined to use it could accomplish anything. In the interest of their spiritual welfare and with a view toward their reward in heaven, rulers were admonished by their priests to exercise moderation in their use of power. Also, it was not a question of what limits the inherent conditions of human life and production set for this power, but rather that they were considered boundless and omnipotent in the sphere of social affairs.</p>
<p>The foundation of social sciences, the work of a large number of great intellects, of whom David Hume and Adam Smith are most outstanding, has destroyed this conception. One discovered that social power was a spiritual one and not (as was supposed) a material and, in the rough sense of the word, a real one. And there was the recognition of a necessary coherence within market phenomena which power is unable to destroy. There was also a realization that something was operative in social affairs that the powerful could not influence and to which they had to accommodate themselves, just as they had to adjust to the laws of nature. In the history of human thought and science there is no greater discovery.</p>
<p>If one proceeds from this recognition of the laws of the market, economic theory shows just what kind of situation arises from the interference of force and power in market processes. The isolated intervention cannot reach the end the authorities strive for in enacting it and must result in consequences which are undesirable from the standpoint of the authorities. Even from the point of view of the authorities themselves the intervention is pointless and harmful. Proceeding from this perception, if one wants to arrange market activity according to the conclusions of scientific thought — and we give thought to these matters not only because we are seeking knowledge for its own sake, but also because we want to arrange our actions such that we can reach the goals we aspire to — one then comes unavoidably to a rejection of such interventions as superfluous, unnecessary, and harmful, a notion which characterizes the liberal teaching. It is not that liberalism wants to carry standards of value over into science; it wants to take from science a compass for market actions. Liberalism uses the results of scientific research in order to construct society in such a way that it will be able to realize as effectively as possible the purposes it is intended to realize. The politico-economic parties do not differ on the end result for which they strive but on the means they should employ to achieve their common goal. The liberals are of the opinion that private property in the means of production is the only way to create wealth for everyone, because they consider socialism impractical and because they believe that the system of interventionism (which according to the view of its advocates is between capitalism and socialism) cannot achieve its proponents' goals.</p>
<p>The liberal view has found bitter opposition. But the opponents of liberalism have not been successful in undermining its basic theory nor the practical application of this theory. They have not sought to defend themselves against the crushing criticism which the liberals have leveled against their plans by logical refutation; instead they have used evasions. The socialists considered themselves removed from this criticism, because Marxism has declared inquiry about the establishment and the efficacy of a socialist commonwealth heretical; they continued to cherish the socialist state of the future as heaven on earth, but refused to engage in a discussion of the details of their plan. The interventionists chose another path. They argued, on insufficient grounds, against the universal validity of economic theory. Not in a position to dispute economic theory logically, they could refer to nothing other than some "moral pathos," of which they spoke in the invitation to the founding meeting of the <em>Vereins für Sozialpolitik [Association for Social Policy]</em> in Eisenach. Against logic they set moralism, against theory emotional prejudice, against argument the reference to the will of the state.</p>
<p><em>Economic theory predicted the effects of interventionism and state and municipal socialism exactly as they happened. </em>All the warnings were ignored. For 50 or 60 years the politics of European countries has been anticapitalist and antiliberal. More than 40 years ago Sidney Webb (Lord Passfield) wrote,</p>
<blockquote><p>it can now fairly be claimed that the socialist philosophy of to-day is but the conscious and explicit assertion of principles of social organization which have been already in great part unconsciously adopted. The economic history of the century is an almost continuous record of the progress of Socialism.<a class="see-footnote" id="footnoteref2_ux61b28" title="Cf. Webb, Fabian Essays in Socialism.… Ed. by G. Bernard Shaw. (American ed., edited by H.G. Wilshire. New York: The Humboldt Publishing Co., 1891) p. 4." href="#footnote2_ux61b28">2</a></p></blockquote>
<p>That was at the beginning of this development and it was in England where liberalism was able for the longest time to hold off the anticapitalistic economic policies. Since then interventionist policies have made great strides. In general the view today is that we live in an age in which the "hampered economy" reigns — as the forerunner of the blessed socialist collective consciousness to come.</p>
<p>Now, because indeed that which economic theory predicted has happened, because the fruits of the anticapitalistic economic policies have come to light, a cry is heard from all sides: this is the decline of capitalism, the capitalistic system has failed!</p>
<p>Liberalism cannot be deemed responsible for any of the institutions which give today's economic policies their character. It was against the nationalization and the bringing under municipal control of projects which now show themselves to be catastrophes for the public sector and a source of filthy corruption; it was against the denial of protection for those willing to work and against placing state power at the disposal of the trade unions, against unemployment compensation, which has made unemployment a permanent and universal phenomenon, against social insurance, which has made those insured into grumblers, malingers, and neurasthenics, against tariffs (and thereby implicitly against cartels), against the limitation of freedom to live, to travel, or study where one likes, against excessive taxation and against inflation, against armaments, against colonial acquisitions, against the oppression of minorities, against imperialism and against war. It put up stubborn resistance against the politics of capital consumption. And liberalism did not create the armed party troops who are just waiting for the convenient opportunity to start a civil war.</p>
<h4>2.</h4>
<p>The line of argument that leads to blaming capitalism for at least some of these things is based on the notion that entrepreneurs and capitalists are no longer liberal but interventionist and statist. The fact is correct, but the conclusions people want to draw from it are wrong-headed. These deductions stem from the entirely untenable Marxist view that entrepreneurs and capitalists protected their special class interests through liberalism during the time when capitalism flourished but now, in the late and declining period of capitalism, protect them through interventionism. This is supposed to be proof that the "hampered economy" of interventionism is the historically necessary economics of the phase of capitalism in which we find ourselves today. But the concept of classical political economy and of liberalism as the ideology (in the Marxist sense of the word) of the bourgeoisie is one of the many distorted techniques of Marxism. If entrepreneurs and capitalists were liberal thinkers around 1800 in England and interventionist, statist, and socialist thinkers around 1930 in Germany, the reason is that entrepreneurs and capitalists were also captivated by the prevailing ideas of the times. In 1800 no less than in 1930 entrepreneurs had special interests which were protected by interventionism and hurt by liberalism.</p>
<p>Today the great entrepreneurs are often cited as "economic leaders." Capitalistic society knows no "economic leaders." Therein lies the characteristic difference between socialist economies on the one hand and capitalist economies on the other hand: in the latter, the entrepreneurs and the owners of the means of production follow no leadership save that of the market. The custom of citing initiators of great enterprises as economic leaders already gives some indication that these days it is not usually the case that one reaches these positions by economic successes but rather by other means.</p>
<p>In the interventionist state it is no longer of crucial importance for the success of an enterprise that operations be run in such a way that the needs of the consumer are satisfied in the best and least expensive way; it is much more important that one has "good relations" with the controlling political factions, that the interventions redound to the advantage and not the disadvantage of the enterprise. A few more marks' worth of tariff protection for the output of the enterprise, a few marks less tariff protection for the inputs in the manufacturing process can help the enterprise more than the greatest prudence in the conduct of operations. An enterprise may be well run, but it will go under if it does not know how to protect its interests in the arrangement of tariff rates, in the wage negotiations before arbitration boards, and in governing bodies of cartels. It is much more important to have "connections" than to produce well and cheaply. Consequently the men who reach the top of such enterprises are not those who know how to organize operations and give production a direction which the market situation demands, but rather men who are in good standing both "above" and "below," men who know how to get along with the press and with all political parties, especially with the radicals, such that their dealings cause no offense. This is that class of general directors who deal more with federal dignitaries and party leaders than with those from whom they buy or to whom they sell.</p>
<p>Because many ventures depend on political favors, those who undertake such ventures must repay the politicians with favors. There has been no big venture in recent years which has not had to expend considerable sums for transactions which from the outset were clearly unprofitable but which, despite expected losses, had to be concluded for political reasons. This is not to mention contributions to non-business concerns — election funds, public welfare institutions, and the like.</p>
<p>Powers working toward the independence of the directors of the large banks, industrial concerns, and joint-stock companies from the stockholders are asserting themselves more strongly. This politically expedited "tendency for big businesses to socialize themselves," that is, for letting interests other than the regard "for the highest possible yield for the stockholders" determine the management of the ventures, has been greeted by statist writers as a sign that we have already vanquished capitalism.<a class="see-footnote" id="footnoteref3_wldibgj" title="Cf. Keynes, "The End of Laisser-Faire," 1926, see, Essays in Persuasion (New York: W.W. Norton & Co., Inc., 1932) pp. 314–315." href="#footnote3_wldibgj">3</a> In the course of the reform of German stock rights, even legal efforts have already been made to put the interest and well-being of the entrepreneur, namely "his economic, legal, and social self-worth and lasting value and his independence from the changing majority of changing stockholders,"<a class="see-footnote" id="footnoteref4_oa34mqu" title="Cf. Passow, Der Strukturwandel der Aktiengesellcschaft im Lichte der Wirtschaftsenquente, (Jena 1939), S.4." href="#footnote4_oa34mqu">4</a> above those of the shareholder.</p>
<p>With the influence of the state behind them and supported by a thoroughly interventionist public opinion, the leaders of big enterprises today feel so strong in relation to the stockholders that they believe they need not take their interests into account. In their conduct of the businesses of society in those countries in which statism has most strongly come to rule — for example in the successor states of the old Austro-Hungarian Empire — they are as unconcerned about profitability as the directors of public utilities. The result is ruin. The theory which has been advanced says that these ventures are too large to be run simply with a view toward profit. This concept is extraordinarily opportune whenever the result of conducting business while fundamentally renouncing profitability is the bankruptcy of the enterprise. It is opportune, because at this moment the same theory demands the intervention of the state for support of enterprises which are too big to be allowed to fail.</p>
<h4>3.</h4>
<p>It is true that socialism and interventionism have not yet succeeded in completely eliminating capitalism. If they had, we Europeans, after centuries of prosperity, would rediscover the meaning of hunger on a massive scale. Capitalism is still prominent enough that new industries are coming into existence, and those already established are improving and expanding their equipment and operations. All the economic advances which have been and will be made stem from the persistent remnant of capitalism in our society. But capitalism is always harassed by the intervention of the government and must pay as taxes a considerable part of its profits in order to defray the inferior productivity of public enterprise.</p>
<p>The crisis under which the world is presently suffering is the crisis of interventionism and of state and municipal socialism, in short the crisis of anticapitalist policies. Capitalist society is guided by the play of the market mechanism. On that issue there is no difference of opinion. The market prices bring supply and demand into congruence and determine the direction and extent of production. It is from the market that the capitalist economy receives its sense. If the function of the market as regulator of production is always thwarted by economic policies in so far as the latter try to determine prices, wages, and interest rates instead of letting the market determine them, then a crisis will surely develop.</p>
<p><em>Bastiat has not failed, but rather Marx and Schmoller.</em></p>
<ul class="footnotes"><li class="footnote" id="footnote1_08io1hz"><a class="footnote-label" href="#footnoteref1_08io1hz">1.</a> This essay was translated from the German by Jane E. Sanders, who wishes to gratefully acknowledge the comments and suggestions of Professor John T. Sanders, Rochester Institute of Technology, and Professor David R. Henderson, University of Rochester, in the preparation of the translation.</li>
<li class="footnote" id="footnote2_ux61b28"><a class="footnote-label" href="#footnoteref2_ux61b28">2.</a> Cf. Webb, <em>Fabian Essays in Socialism</em>.… Ed. by G. Bernard Shaw. (American ed., edited by H.G. Wilshire. New York: The Humboldt Publishing Co., 1891) p. 4.</li>
<li class="footnote" id="footnote3_wldibgj"><a class="footnote-label" href="#footnoteref3_wldibgj">3.</a> Cf. Keynes, "The End of Laisser-Faire," 1926, see, <em>Essays in Persuasion</em> (New York: W.W. Norton & Co., Inc., 1932) pp. 314–315.</li>
<li class="footnote" id="footnote4_oa34mqu"><a class="footnote-label" href="#footnoteref4_oa34mqu">4.</a> Cf. Passow, Der Strukturwandel der Aktiengesellcschaft im Lichte der Wirtschaftsenquente, (Jena 1939), S.4.</li>
</ul>Ludwig von MisesThe Myth of the Failure of Capitalism<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/broken.PNG?itok=Ctcys-46" width="240" alt="broken.PNG" />5955September 26, 2018 - 2:00 PMInterventionismMalinvestment, Not Overinvestment, Causes Boomshttps://mises.org/node/5860
<div class="editorial-preface"><p>[This article is excerpted from chapter 20 of <em><a href="http://store.mises.org/Human-Action-The-Scholars-Edition-P119.aspx">Human Action: The Scholar's Edition</a></em> and is <a href="https://mises.org/library/malinvestment-not-overinvestment-causes-booms-0">read by Jeff Riggenbach</a>.]</p>
<p> </p></div>
<div class="figure"><div class="bigger pullquote">"The boom is built on the sands of banknotes and deposits. It must collapse."</div></div>
<p>The erroneous belief that the essential feature of the boom is overinvestment and not malinvestment is due to the habit of judging conditions merely according to what is perceptible and tangible. The observer notices only the malinvestments which are visible and fails to recognize that these establishments are malinvestments only because of the fact that other plants — those required for the production of the complementary factors of production and those required for the production of consumers' goods more urgently demanded by the public — are lacking.</p>
<p>Technological conditions make it necessary to start an expansion of production by expanding first the size of the plants producing the goods of those orders which are farthest removed from the finished consumers' goods. In order to expand the production of shoes, clothes, motorcars, furniture, and houses, one must begin with increasing the production of iron, steel, copper, and other such goods.…</p>
<p>The whole entrepreneurial class is, as it were, in the position of a master builder whose task it is to erect a building out of a limited supply of building materials. If this man overestimates the quantity of the available supply, he drafts a plan for the execution of which the means at his disposal are not sufficient. He oversizes the groundwork and the foundations and only discovers later in the progress of the construction that he lacks the material needed for the completion of the structure. It is obvious that our master builder's fault was not overinvestment, but an inappropriate employment of the means at his disposal.</p>
<p>It is no less erroneous to believe that the events which resulted in the crisis amounted to an undue conversion of "circulating" capital into "fixed" capital. The individual entrepreneur, when faced with the credit stringency of the crisis, is right in regretting that he has expended too much for an expansion of his plant and for the purchase of durable equipment; he would have been in a better situation if the funds used for these purposes were still at his disposal for the current conduct of business.</p>
<p>However, raw materials, primary commodities, half-finished manufactures, and foodstuffs are not lacking at the turning point at which the upswing turns into the depression. On the contrary, the crisis is precisely characterized by the fact that these goods are offered in such quantities as to make their prices drop sharply.</p>
<p>The foregoing statements explain why an expansion in the production facilities and the production of the heavy industries, and in the production of durable producers' goods, is the most conspicuous mark of the boom. The editors of the financial and commercial chronicles were right when — for more than a hundred years — they looked upon production figures of these industries as well as of the construction trades as an index of business fluctuations. They were only mistaken in referring to an alleged overinvestment.</p>
<p>Of course, the boom affects also the consumers' goods industries. They too invest more and expand their production capacity. However, the new plants and the new annexes added to the already existing plants are not always those for the products of which the demand of the public is most intense.…</p>
<p>A sharp rise in commodity prices is not always an attending phenomenon of the boom. The increase of the quantity of fiduciary media certainly always has the potential effect of making prices rise. But it may happen that at the same time forces operating in the opposite direction are strong enough to keep the rise in prices within narrow limits or even to remove it entirely. The historical period in which the smooth working of the market economy was again and again interrupted through expansionist ventures was an epoch of continuous economic progress.</p>
<div class="bigger pullquote">"The change in the banks' conduct does not create the crisis. It merely makes visible the havoc spread by the faults which business has committed in the boom period."</div>
<p>The steady advance in the accumulation of new capital made technological improvement possible. Output per unit of input was increased and business filled the markets with increasing quantities of cheap goods. If the synchronous increase in the supply of money (in the broader sense) had been less plentiful than it really was, a tendency toward a drop in the prices of all commodities would have taken effect.</p>
<p>As an actual historical event credit expansion was always embedded in an environment in which powerful factors were counteracting its tendency to raise prices. As a rule the resultant of the clash of opposite forces was a preponderance of those producing a rise in prices. But there were some exceptional instances too in which the upward movement of prices was only slight. The most remarkable example was provided by the American boom of 1926–29.</p>
<p>The essential features of a credit expansion are not affected by such a particular constellation of the market data. What induces an entrepreneur to embark upon definite projects is neither high prices nor low prices as such, but a discrepancy between the costs of production, inclusive of interest on the capital required, and the anticipated prices of the products.</p>
<p>A lowering of the gross market rate of interest as brought about by credit expansion always has the effect of making some projects appear profitable which did not appear so before.… It necessarily brings about a structure of investment and production activities which is at variance with the real supply of capital goods and must finally collapse. That sometimes the price changes involved are laid against a background of a general tendency toward a rise in purchasing power and do not convert this tendency into its manifest opposite but only into something which may by and large be called price stability, modifies merely some accessories of the process.</p>
<p>However conditions may be, it is certain that no manipulations of the banks can provide the economic system with capital goods. What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The boom is built on the sands of banknotes and deposits. It must collapse.</p>
<p>The breakdown appears as soon as the banks become frightened by the accelerated pace of the boom and begin to abstain from further expansion of credit. The boom could continue only as long as the banks were ready to grant freely all those credits which business needed for the execution of its excessive projects, utterly disagreeing with the real state of the supply of factors of production and the valuations of the consumers.</p>
<p>These illusory plans, suggested by the falsification of business calculation as brought about by the cheap money policy, can be pushed forward only if new credits can be obtained at gross market rates which are artificially lowered below the height they would reach at an unhampered loan market. It is this margin that gives them the deceptive appearance of profitability. The change in the banks' conduct does not create the crisis. It merely makes visible the havoc spread by the faults which business has committed in the boom period.</p>
<div class="bigger pullquote">"The characteristic mark of economic history under capitalism is unceasing economic progress, a steady increase in the quantity of capital goods available, and a continuous trend toward an improvement in the general standard of living."</div>
<p>Neither could the boom last endlessly if the banks were to cling stubbornly to their expansionist policies. Any attempt to substitute additional fiduciary media for nonexisting capital goods is doomed to failure. If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders. However, as a rule, the banks in the past have not pushed things to extremes. They have become alarmed at a date when the final catastrophe was still far away.<a class="see-footnote" id="footnoteref1_sp39k6p" title="" href="#footnote1_sp39k6p">1</a></p>
<div>One should not fall prey to the illusion that these changes in the credit policies of the banks were caused by the bankers' and the monetary authorities' insight into the unavoidable consequences of a continued credit expansion. What induced the turn in the banks' conduct was certain institutional conditions to be dealt with further below, on pp. 790–791. Among the champions of economics some private bankers were prominent; in particular, the elaboration of the early form of the theory of business fluctuations, the Currency Theory, was for the most part an achievement of British bankers. But the management of central banks and the conduct of the various governments' monetary policies was as a rule entrusted to men who did not find any fault with boundless credit expansion and took offense at every criticism of their expansionist ventures.</div>
<p> </p>
<p>As soon as the afflux of additional fiduciary media comes to an end, the airy castle of the boom collapses. The entrepreneurs must restrict their activities because they lack the funds for their continuation on the exaggerated scale. Prices drop suddenly because these distressed firms try to obtain cash by throwing inventories on the market dirt cheap. Factories are closed, the continuation of construction projects in progress is halted, workers are discharged. As on the one hand many firms badly need money in order to avoid bankruptcy, and on the other hand no firm any longer enjoys confidence, the entrepreneurial component in the gross market rate of interest jumps to an excessive height.</p>
<p>Accidental institutional and psychological circumstances generally turn the outbreak of the crisis into a panic. The description of these awful events can be left to the historians. It is not the task of catallactic theory to depict in detail the calamities of panicky days and weeks and to dwell upon their sometimes grotesque aspects.</p>
<p>Economics is not interested in what is accidental and conditioned by the individual historical circumstances of each instance. Its aim is, on the contrary, to distinguish what is essential and apodictically necessary from what is merely adventitious. It is not interested in the psychological aspects of the panic, but only in the fact that a credit-expansion boom must unavoidably lead to a process which everyday speech calls the depression. It must realize that the depression is in fact the process of readjustment, of putting production activities anew in agreement with the given state of the market data: the available supply of factors of production, the valuations of the consumers, and particularly also the state of originary interest as manifested in the public's valuations.</p>
<p>These data, however, are no longer identical with those that prevailed on the eve of the expansionist process. A good many things have changed. Forced saving and, to an even greater extent, regular voluntary saving may have provided new capital goods which were not totally squandered through malinvestment and overconsumption as induced by the boom. Changes in the wealth and income of various individuals and groups of individuals have been brought about by the unevenness inherent in every inflationary movement.</p>
<p>Apart from any causal relation to the credit expansion, population may have changed with regard to figures and the characteristics of the individuals comprising them; technological knowledge may have advanced, demand for certain goods may have been altered. The final state to the establishment of which the market tends is no longer the same toward which it tended before the disturbances created by the credit expansion.</p>
<p>Some of the investments made in the boom period appear, when appraised with the sober judgment of the readjustment period, no longer dimmed by the illusions of the upswing, as absolutely hopeless failures. They must simply be abandoned because the current means required for their further exploitation cannot be recovered in selling their products; this "circulating" capital is more urgently needed in other branches of want-satisfaction; the proof is that it can be employed in a more profitable way in other fields.</p>
<p>Other malinvestments offer somewhat more favorable chances. It is, of course, true that one would not have embarked upon putting capital goods into them if one had correctly calculated. The inconvertible investments made on their behalf are certainly wasted. But as they are inconvertible, a <em>fait accompli,</em> they present further action with a new problem. If the proceeds which the sale of their products promises are expected to exceed the costs of current operation, it is profitable to carry on. Although the prices which the buying public is prepared to allow for their products are not high enough to make the whole of the inconvertible investment profitable, they are sufficient to make a fraction, however small, of the investment profitable. The rest of the investment must be considered as expenditure without any offset, as capital squandered and lost.</p>
<p>If one looks at this outcome from the point of view of the consumers, the result is, of course, the same. The consumers would be better off if the illusions created by the easy-money policy had not enticed the entrepreneurs to waste scarce capital goods by investing them for the satisfaction of less urgent needs and withholding them from lines of production in which they would have satisfied more urgent needs. But as things are now, they cannot but put up with what is irrevocable. They must for the time being renounce certain amenities which they could have enjoyed if the boom had not engendered malinvestment.</p>
<p>But, on the other hand, they can find partial compensation in the fact that some enjoyments are now available to them which would have been beyond their reach if the smooth course of economic activities had not been disturbed by the orgies of the boom. It is slight compensation only, as their demand for those other things which they do not get because of inappropriate employment of capital goods is more intense than their demand for these "substitutes," as it were. But it is the only choice left to them as conditions and data are now.</p>
<p>The final outcome of the credit expansion is general impoverishment. Some people may have increased their wealth; they did not let their reasoning be obfuscated by the mass hysteria, and took advantage in time of the opportunities offered by the mobility of the individual investor. Other individuals and groups of individuals may have been favored, without any initiative of their own, by the mere time lag between the rise in the prices of the goods they sell and those they buy. But the immense majority must foot the bill for the malinvestments and the overconsumption of the boom episode.</p>
<p>One must guard oneself against a misinterpretation of this term, "impoverishment." It does not mean impoverishment when compared with the conditions that prevailed on the eve of the credit expansion. Whether or not an impoverishment in this sense takes place depends on the particular data of each case; it cannot be predicated apodictically by catallactics. What catallactics has in mind when asserting that impoverishment is an unavoidable outgrowth of credit expansion is impoverishment as compared with the state of affairs which would have developed in the absence of credit expansion and the boom.</p>
<p>The characteristic mark of economic history under capitalism is unceasing economic progress, a steady increase in the quantity of capital goods available, and a continuous trend toward an improvement in the general standard of living. The pace of this progress is so rapid that, in the course of a boom period, it may well outstrip the synchronous losses caused by malinvestment and overconsumption. Then the economic system as a whole is more prosperous at the end of the boom than it was at its very beginning; it appears impoverished only when compared with the potentialities which existed for a still-better state of satisfaction.</p>
<div class="article-author"><p>This article is excerpted from chapter 20 of <em><a href="http://store.mises.org/Human-Action-The-Scholars-Edition-P119.aspx">Human Action: The Scholar's Edition</a></em> and is <a href="http://media.mises.org/mp3/audioarticles/4309_Mises.mp3">read by Jeff Riggenbach</a>.</p></div>
<ul class="footnotes"><li class="footnote" id="footnote1_sp39k6p"><a class="footnote-label" href="#footnoteref1_sp39k6p">1.</a> </li>
</ul>Ludwig von MisesMalinvestment, Not Overinvestment, Causes Booms<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/percent1.PNG?itok=0VyCEUko" width="240" alt="percent1.PNG" />5860September 11, 2018 - 2:00 PMInterventionismWhat Causes Moral Hazard?https://mises.org/node/19533
<h3>The Free Market 26, no. 4 (April 2008)</h3>
<p> </p>
<p>A central occupation of economists is to analyze the nature, causes, and effects of incentives—the circumstances that are held to motivate human action. Economists agree on the positive role that “good” incentives play to increase production. They also agree that “perverse” incentives have an opposite impact. One of these perverse incentives is called moral hazard.</p>
<p>Moral hazard is the incentive of a person A to use more resources than he otherwise would have used, because he knows, or believes he knows, that someone else B will provide some or all of these resources. The important point is that this occurs <em>against B’s will</em> and that B is unable to sanction this expropriation immediately. The mere incentive to rely on resources provided by others is not <em>per se</em> problematic.</p>
<p>For example, the announcement of a future inheritance might prompt the prospective heir to spend more in the present than he would otherwise have spent. In such cases we would not speak of moral hazard. A genuine moral-hazard problem appears however if A has the possibility to use B’s resources against B’s will and if he knows this. Laymen would call A’s incentives a “temptation to steal” or a “temptation to act irresponsibly.” Economists, ever weary of moralizing, have espoused the technocratic expression “moral hazard.”</p>
<p>The essential feature of moral hazard is that it incites some A-people to expropriate other B-people. The B-people in turn, if they realize the presence of such a moral hazard, have an incentive to react against this possible expropriation. They make other choices than those that they would consider to be best if there were no moral hazard.</p>
<p>Many economists have therefore concluded that moral hazard entails market failures; it brings about a different allocation of resources than the one that would exist in the absence of moral hazard. Conventional economic theory explains moral hazard as a consequence of the fact that market participants are unequally well informed about economic reality. In other words, moral hazard results from “asymmetries of information” and the theory of moral hazard is therefore considered to be a part of the economics of information.</p>
<p>That people act on the basis of different knowledge about the real world will hardly be contested. The baker knows other things than the astronaut, the opera singer other things than the teacher of mathematics. Neither can it be doubted that people are unequally well informed about the real world. Some bakers know more about cakes, cake making, and the cake market than others, and so on. In short, information asymmetries are a universal aspect of human life as we know it. They are both a cause and a result of the division of labor. There is no reason to suppose that they are <em>a priori</em> harmful or a sign of imperfection. Conventional theory therefore stresses an additional condition to explain the emergence of moral hazard, namely, the separation of ownership and control. Two main cases can be distinguished: co-ownership and agency contracts.</p>
<p>In the case of co-ownership, any one owner has control over a given piece of property, but not exclusive control. Informational asymmetries can then produce moral hazard <em>in conjunction with</em> this separation of ownership and control. Whenever one co-owner of a swimming pool cannot effectively monitor the activities of his fellow-owners, the latter have an incentive to swim without cleaning up, repairing the fences and so on, thus increasing their own (monetary and psychic) income at his expense.</p>
<p>Similarly, in the case of an agency contract, moral hazard can arise when an economic good is not effectively controlled by its owner (the “principal”) but by a different person called the “agent,” for example, by an employee. Again, informational asymmetries produce moral hazard in conjunction with this separation of ownership and control. The agent, who is fully informed about his own activities, has an incentive to act in his own material interest against the material interests of his less informed principal. Whenever the principal cannot effectively monitor the activities of his agent, therefore, the latter has an incentive to increase his own (monetary and psychic) income at the expense of the former.</p>
<p>The standard case of moral hazard in an agency setting is an insurance contract. Here the insurance company is the less informed principal and the insured person is the agent. Automobile insurance, for example, creates a moral hazard for drivers; it creates an additional incentive for risky driving because other people (other clients of the insurance company) will pay a part of the costs of the agent’s accidents.</p>
<p>Similarly, in the presence of unemployment insurance, an unemployed person has an additional incentive to stay unemployed because other people will pay at least a part of his living expenses. Or, in the presence of health insurance, insured people will have an additional incentive to engage in risky activities or lifestyles because others will pay at least a part of the treatment in case of illness or accidents.</p>
<p>However, moral hazard is in no way a particular problem of the insurance industry. It can arise in almost any other field of human activity where there is a separation of ownership and control. Employees can be subject to moral hazard to the extent that they can reduce their efforts without fearing reduced pay. Debtors may be subject to moral hazard if they believe they can squander the money without negative consequences when they turn out to be incapable of paying back. Certain auditing firms have been subject to moral hazard when they sold consulting services to the very companies they were supposed to audit (for example, in the Enron case).</p>
<p>A central bank can produce moral hazard in the banking community if the commercial bankers perceive the central bank as a lender of last resort. The IMF can produce moral hazard among debtor governments. Taxpayers are said to be subject to moral hazard if they can evade high-tax regions, and so on. Similarly, in the literature on public choice and constitutional political economy, governments and parliaments are often portrayed as agents prone to moral hazard, whereas the voters are the less informed principals.</p>
<p>Important though moral hazard stemming from a deficient definition of property rights might be in practice, it is no match for moral hazard that results from a <em>forced </em>separation of ownership and control.</p>
<p>By a “forced” separation of ownership and control we mean a separation brought about against the will of its owner. Although owners might be forced both by governments and by private parties, government interventionism is far more important in practice. This is so not only because of the greater quantitative impact, but also because, in our western societies at least, interventionism is usually enshrined in the law and thus can be anticipated.</p>
<p>Government interventionism must not be confused with a mixed economy. In the latter the government is one of several owners and it controls only its own property. By contrast, an interventionist government commands other property owners to use their resources in a different way than these owners themselves would have used them. In so doing, the interventionist government makes some person or group A (for example itself) the uninvited co-owner of other agent B’s property. The essence of interventionism is precisely this: institutionalized uninvited co-ownership.</p>
<p>Government makes itself the uninvited and unwanted co-owner whenever it taxes, regulates, and prohibits. The specific forms of taxation, regulation, and prohibition are myriad. The important fact is that any form of government interventionism, by its very nature, entails a forced separation of ownership and effective control.</p>
<p>Taxation means that the government proclaims itself the owner of (a certain share of) resources belonging to its subjects; and that it forces them to eventually hand over these resources, which the latter would not have yielded voluntarily (otherwise one would not speak of taxation, but of donations to the government). Today taxation does not concern concrete physical items, but their monetary equivalent. It follows that, until the tax is paid, the government imposes itself as the co-owner of virtually all physical assets of the taxpayers. However, until the tax is paid, the resources in question are typically controlled by the citizen.</p>
<p>Regulation means that the government proscribes a certain use of certain resources. This use is typically not the one that the citizens would have chosen (otherwise the regulation would be pointless). Again, the government thereby proclaims itself the co-owner of these resources. Consider the case of price controls. If the government fixes a minimum wage rate, it effectively proclaims itself the co-owner of workers, because it does not allow them to work under conditions they see fit. And it also proclaims itself the co-owner of the capitalists or, more precisely, of the money that the latter plan to spend on labor. However, the government does not permanently control the actions of the workers, and it does not interfere with other uses of the capitalists’ money.</p>
<p>Prohibition means that the government outlaws a certain use of certain resources altogether. Again, it thereby proclaims itself the co-owner of all resources that could be put to the prohibited use. For example, if it prohibits the production and sale of alcoholic beverages it effectively imposes itself as a co-owner of all resources that could be used for the production and sale of such drinks. However, it does not interfere when those resources are used in other employments.</p>
<p>Interventionism does not abolish private property. The citizens still have ownership and control of their property, even though they have to share both ownership and control with the government and its agents. It is true that this forced co-ownership is usually a matter of degree. Increased interventionism <em>increases </em>the share of government control of resources, though without outlawing other people’s simultaneous control of these same resources. But the forced nature of the co-ownership itself is not a matter of degree. It is a categorical and essential feature of any intervention, be it ever so small.</p>
<p>Government interventionism always and everywhere entails a forced separation of ownership and control. It always and everywhere creates unwanted “partnerships” between the citizens and their government. It follows that, by its very nature, it creates a moral hazard both for the citizens and for the government. Most importantly, it creates a situation in which each of the parties involved (the citizens on the one hand and the government on the other hand) desires to expropriate the resources subject to interventionism at the expense of the other parties. First consider the reaction of the <em>citizens</em> to taxation, regulation, and prohibition.</p>
<p>From the very fact that intervention entails <em>forced</em> co-ownership, it follows that the citizens have an incentive to evade the intervention. They<em> can</em> to some extent evade it because they have<em> some</em> control of their property. To avoid taxation, for example, they can choose to invest capital in a country with low taxes rather than in a country with high taxes; they can choose to emigrate to low-tax countries rather than stay in high-tax places; they can choose a profession that is less taxed than other professions; or they can choose to make fraudulent declarations of their income and capital. To evade regulations, they can choose not to buy or sell commodities subject to price controls, or they can choose to buy and sell them on the black market. To evade prohibitions, they can buy and sell prohibited items on the black market. However, operating on the black market is risky and thus very costly, and evasion to other countries is costly too. Thus it follows that there is an incentive for the citizens to use a greater part of their property for personal consumption rather than invest it. Hence, the general tendency of interventionism on the citizens is to entail excessive consumption and to make production more costly because of the necessity to evade the intervention.</p>
<p>But moral hazard also comes into play on the side of the government itself. Governments rely on the resource use that comes through taxation and regulation. They will therefore tend to tax more and regulate more in order to neutralize the ways in which the citizens evaded its previous intervention. It will seek to “close the loopholes.” We have here a basic mechanism of the dynamics of government interventionism. Interventionist governments have an incentive to extend taxation to all branches of economic life; to regulate industries that have so far escaped regulation; and to beat into submission the countries that serve as tax havens. The ultimate result is to reinforce the tendencies that we characterized above: excessive consumption and insufficient production; in short, a general impoverishment of society.</p>
<p>It is not co-ownership <em>per se</em> that causes these excesses. They are caused by the <em>uninvited</em> and unwanted co-ownership that springs from interventionism.</p>
<p>Notice that our foregoing analysis in no way depends on the existence of asymmetrical information. We can assume for the sake of argument that all citizens are perfectly aware of the government’s activities, and that the government is also perfectly well informed about the activities of all citizens. All of this would not alter the picture. Government interventionism entails moral hazard both on the side of the government and on the side of the citizens. And this moral hazard cannot be neutralized by choosing appropriate contractual devices, because it has no contractual basis at all; it is imposed. It cannot be sidestepped by choosing to avoid the moral-hazard-prone situation altogether, because the situation itself is imposed. The very meaning of interventionism is, as we have said, to overrule the choices of property owners.</p>
<p>And similarly, the workings of moral hazard cannot be eliminated or diminished by correct expectations, as in the case of moral hazard on the free market. The case is exactly the reverse. It is precisely when the citizens correctly anticipate <em>how high</em> the next tax will be, and <em>when</em> it will hit them, that a moral hazard will start bearing on them and incite them to evade the tax.</p>
<p>Let us now turn to the discussion of an important case in which government interventionism produces moral hazard on a large scale: monetary interventionism.</p>
<p>The fundamental intervention, on which all other interventions in this field are built, is the imposition of a legal tender. The latter is a means of payment that the market participants are obliged to accept, even if they made contracts that stipulated payments in terms of other media of exchange. This intervention creates a moral hazard for the market participants to hoard or export the media of exchange that in their eyes are better than the legal tender, but which they are legally bound to use at par with the legal tender. The paradoxical result is that only the legal tender—the medium of exchange that everybody seeks to avoid —remains in circulation. Economists call this phenomenon “Gresham’s Law.”</p>
<p>But fiat paper money also creates moral hazard for citizens, banks, and governments because they sooner or later come to realize that the masters of the printing press have the power to bail out virtually any bankrupt firm or government.</p>
<p>All contemporary monetary systems are based on such legal tender privileges. Paper money—as well as electronic money (“central-bank liquidity”)—does not compete with other monetary products on the free market, but is imposed by special privilege. It is therefore called<em> fiat</em> paper money. This institution is of great interest from the point of view of the theory of moral hazard. In fact it entails moral hazard on the greatest imaginable scale, again, both on the side of its producer and on the side of its users.</p>
<p>Fiat paper money creates moral hazard for the producer because he has the possibility of creating <em>ex nihilo</em> virtually any amount of money and, thus, to buy virtually any amount of goods and services for sale. The only limit to this capacity is the hyperinflation that invariably results in the case of a great inflation of the money supply.</p>
<p>But fiat paper money also creates moral hazard on the side of the money users—the citizens, the banks, and the governments—because they sooner or later come to realize that the masters of the printing press have the power to bail out virtually any bankrupt firm or government. Thus they engage in more or less reckless financial planning, expecting that the monetary authorities will not allow a great mass of reckless planners to go bankrupt. This speculation has been borne out by the last 30 years Public and private debts are at record heights all over the world.</p>
<p>Monetary theorists were aware of this danger early on, even though they did not use the word “moral hazard” in this context.</p>
<p>Here we should mention in the first place all defenders of sound money— that is—of competitive money, such as Ludwig von Mises, F.A. Hayek, Murray Rothbard, and many other economists of the Austrian School.</p>
<p>The idea that rules could prevent large-scale moral hazard in a fiat paper money system defies human logic. After all, the only possible use of a printing press is to produce more money than would have been produced on a free market.</p>
<p>Financial bubbles are the unavoidable result of such a state of affairs. If more or less every major participant to the financial market is subject to moral hazard, then in due time even the smaller traders realize that the bigger fish play the moral hazard card, and thus they too venture to set out on the same path. This means that the market participants sooner or later come to base their plans on the availability of a far greater quantity of goods and services than is really available in the economy. In short, paper money <em>by virtue of its mere existence</em> produces massive error on a large scale, until the bubble bursts in a crisis.</p>
<p>Again, as in the other cases of interventionism- induced moral hazard, these effects cannot be neutralized, avoided, or diminished through anticipations. And this means that they cannot be managed through the management of expectations. Mainstream economists have in the past 30 years labored to bring expectations into the picture of monetary policy. The next 30 years will presumably be needed to take account of institutionalized moral hazard. The problem is that our monetary system will not survive that long, if we can extrapolate the speed of the events of the past 30 years.</p>
Jörg Guido HülsmannWhat Causes Moral Hazard?<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/devil1.PNG?itok=kkdXh6CC" width="240" alt="devil1.PNG" />19533September 6, 2018 - 2:00 PMInterventionismMarkets, Not Unions, Gave us Leisurehttps://mises.org/node/7209
<p>In <em>Human Action</em> Ludwig von Mises wrote that labor unions have always been the primary source of anti-capitalistic propaganda. I was reminded of this recently when I saw a bumper sticker proclaiming one of the bedrock tenets of unionism: "The Union Movement: The People Who Brought You the Weekend."</p>
<p>Well, not exactly. In the U.S. the average work week was 61 hours in 1870, compared to 34 hours today, and this near doubling of leisure time for American workers was caused by capitalism, not unionism. As Mises explained, "In the capitalist society there prevails a tendency toward a steady increase in the per capita quota of capital invested . . . . Consequently, the marginal productivity of labor, wage rates, and the wager earners’ standard of living tend to rise continually."</p>
<p>Of course, this is only true of a capitalist economy where private property, free markets, and entrepreneurship prevail. The steady rise in living standards in (predominantly) capitalist countries is due to the benefits of private capital investment, entrepreneurship, technological advance, and a better educated workforce (no thanks to the government school monopoly, which has only served to dumb down the population). Labor unions routinely take credit for all of this while pursuing policies which impede the very institutions of capitalism that are the cause of their own prosperity.</p>
<p>The shorter work week is entirely a capitalist invention. As capital investment caused the marginal productivity of labor to increase over time, less labor was required to produce the same levels of output. As competition became more intense, many employers competed for the best employees by offering both better pay and shorter hours. Those who did not offer shorter work weeks were compelled by the forces of competition to offer higher compensating wages or become uncompetitive in the labor market. </p>
<p>Capitalistic competition is also why "child labor" has all but disappeared, despite unionist claims to the contrary. Young people originally left the farms to work in harsh factory conditions because it was a matter of survival for them and their families. But as workers became better paid—thanks to capital investment and subsequent productivity improvements—more and more people could afford to keep their children at home and in school. Union-backed legislation prohibiting child labor came <em>after</em> the decline in child labor had already begun. Moreover, child labor laws have always been protectionist and aimed at depriving young people of the opportunity to work. Since child labor sometimes competes with unionized labor, unions have long sought to use the power of the state to deprive young people of the right to work. In the Third World today, the alternative to "child labor" is all too often begging, prostitution, crime, or starvation. Unions absurdly proclaim to be taking the moral high road by advocating protectionist policies that inevitably lead to these consequences.</p>
<p>Unions also boast of having championed safety regulation by the Occupational Safety and Health Administration (OSHA) over the past three decades. The American workplace has indeed become safer over the past century, but this was also due to the forces of competitive capitalism, not union-backed regulation. </p>
<p>An unsafe or dangerous workplace is costly to employers because they must pay a compensating difference (higher wage) to attract workers. Employers therefore have a powerful financial interest in improving workplace safety, especially in manufacturing industries where wages often comprise the majority of total costs. In addition, employers must bear the costs of lost work, retraining new employees, and government-imposed workman’s compensation whenever there is an accident on the job. Not to mention the threat of lawsuits. </p>
<p>Investments in technology, from air-conditioned farm tractors to the robots used in automobile factories, have also made the American workplace safer. But unions have often <em>opposed</em> such technology with the Luddite argument that it "destroys jobs." </p>
<p>Mises was right that unions have always been a primary source of anti-capitalistic propaganda. But since he wrote <em>Human Action</em> American unions have also been at the forefront of lobbying efforts on behalf of the regulation and taxation of business—of capital—that has severely hampered the market economy, making everyone, including unionists, worse off economically. The regulation of business by the EPA, OSHA, FTC, DOE, and hundreds of other federal, state, and local government bureaucracies constitutes an effective tax on capital investment that makes such investment less profitable. Less capital investment causes a decline in the growth of labor productivity, which in turn slows down the growth of wages and living standards. </p>
<p>In addition, slower productivity leads to a slower growth of output in the economy, which causes prices to be higher than they otherwise would be; and fewer new products are invented and marketed. All of these things are <em>harmful</em> to the economic well-being of the very people labor unions claim to "represent." (Incredibly, there are some economists who argue that unions are <em>good</em> for productivity. But if that were true, corporations would be <em>recruiting</em> them instead of spending millions trying to avoid unionization).</p>
<p>Mises also pointed out that as business becomes more heavily regulated, business decisions are based more and more on compliance with governmental edicts than on profit-making. American labor unions continue to call for more regulation of business because, in order for them to survive, they must convince workers—and society—that "the company is the enemy." That’s why, as Mises noted, union propaganda has always been anti-capitalistic. Workers supposedly need to be protected from "the enemy" by labor unions. </p>
<p>However, the substitution of bureaucratic compliance for profit-making decisions reduces profitability, usually with little or no benefit to anyone from the regulations being complied with. The end result is once again a reduction in the profitability of investment, and subsequently less investment takes place. Wages are stunted, thanks to self-defeating unionist propaganda. The well-paid union officials may keep their jobs and their perks by perpetuating such propaganda, but they are harming the very people who pay the dues which are used to pay their own salaries.</p>
<p>[Originally published August 23, 2004.]</p>
Thomas J. DiLorenzoMarkets, Not Unions, Gave us Leisure<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/vacation1.PNG?itok=1Uk0Rcgs" width="240" alt="vacation1.PNG" />7209September 3, 2018 - 2:00 PMInterventionismThe Lesson of Soviet Medicinehttps://mises.org/node/19549
<h3>The Free Market 27, no. 10 (October 2009)</h3>
<p>In 1918, the Soviet Union became the first country to promise universal “cradle-to-grave” healthcare coverage, to be accomplished through the complete socialization of medicine. The “right to health” became a “constitutional right” of Soviet citizens. The proclaimed advantages of this system were that it would “reduce costs” and eliminate the “waste” that stemmed from “unnecessary duplication and parallelism”—i.e., competition.</p>
<p>These goals were similar to the ones declared by Mr. Obama and Ms. Pelosi—attractive and humane goals of universal coverage and low costs. What’s not to like?</p>
<p>The system had many decades to work, but widespread apathy and low quality of work paralyzed the healthcare system. In the depths of the socialist experiment, healthcare institutions in Russia were at least a hundred years behind the average US level. Moreover, the filth, odors, cats roaming the halls, drunken medical personnel, and absence of soap and cleaning supplies added to an overall impression of hopelessness and frustration that paralyzed the system. According to official Russian estimates, 78 percent of all AIDS victims in Russia contracted the virus through dirty needles or HIV-tainted blood in the state-run hospitals.</p>
<p>Irresponsibility, expressed by the popular Russian saying “They pretend they are paying us and we pretend we are working,” resulted in appalling quality of service, widespread corruption, and extensive loss of life. My friend, a famous neurosurgeon in today’s Russia, received a monthly salary of 150 rubles—one third of the average bus driver’s salary.</p>
<p>In order to receive minimal attention by doctors and nursing personnel, patients had to pay bribes. I even witnessed a case of a “nonpaying” patient who died trying to reach a lavatory at the end of the long corridor after brain surgery. Anesthesia was usually “not available” for abortions or minor ear, nose, throat, and skin surgeries. This was used as a means of extortion by unscrupulous medical bureaucrats.</p>
<p>To improve the statistics concerning the numbers of people dying within the system, patients were routinely shoved out the door before taking their last breath.</p>
<p>Being a People’s Deputy in the Moscow region from 1987 to 1989, I received many complaints about criminal negligence, bribes taken by medical apparatchiks, drunken ambulance crews, and food poisoning in hospitals and child-care facilities. I recall the case of a fourteen-year-old girl from my district who died of acute nephritis in a Moscow hospital. She died because a doctor decided that it was better to save “precious” X-ray film (imported by the Soviets for hard currency) instead of double-checking his diagnosis. These X-rays would have disproven his diagnosis of neuropathic pain.</p>
<p>I<span style="line-height: 1.66667;">nstead, the doctor treated the teenager with a heat compress, which killed her almost instantly. There was no legal remedy for the girl’s parents and grandparents. By definition, a single-payer system cannot allow any such remedy. The girl’s grandparents could not cope with this loss and they both died within six months. The doctor received no official reprimand.</span></p>
<p><span style="line-height: 1.66667;">Not surprisingly, government bureaucrats and Communist Party officials, as early as 1921 (three years after Lenin’s socialization of medicine), realized that the egalitarian system of healthcare was good only for their personal interest as providers, managers, and </span>rationers<span style="line-height: 1.66667;">—but not as private users of the system. </span></p>
<p><span style="line-height: 1.66667;">So, as in all countries with socialized medicine, a two-tier system was created: one for the “gray masses” and the other, with a completely different level of service, for the bureaucrats and their intellectual servants. In the USSR, it was often the case that while workers and peasants were dying in the state hospitals, the medicine and equipment that could save their lives was sitting unused in the </span>nomenklatura<span style="line-height: 1.66667;"> system. </span></p>
<p><span style="line-height: 1.66667;">At the end of the socialist experiment, the official infant-mortality rate in Russia was more than 2.5 times as high as in the United States and more than five times that of Japan. The rate of 24.5 deaths per 1,000 live births was questioned recently by several deputies to the Russian Parliament, who claim that it is seven times higher than in the United States. This would make the Russian death rate 55 compared to the US rate of 8.1 per 1,000 live births. </span></p>
<p><span style="line-height: 1.66667;">Having said that, I should make it clear that the United States has one of the highest rates of the industrialized world only because it counts all dead infants, including premature babies, which is where most of the fatalities occur. </span></p>
<p><span style="line-height: 1.66667;">Most countries do not count premature-infant deaths. Some don’t count any deaths that occur in the first 72 hours. Some countries don’t even count any deaths from the first two weeks of life. In Cuba, which boasts a very low infant-mortality rate, infants are only registered when they are several months old, thereby leaving out of the official statistics all infant deaths that take place within the first several months of life.</span></p>
<p><span style="line-height: 1.66667;">In the rural regions of </span>Karakalpakia<span style="line-height: 1.66667;">, </span>Sakha<span style="line-height: 1.66667;">, </span>Chechnya<span style="line-height: 1.66667;">, </span>Kalmykia<span style="line-height: 1.66667;">, and </span>Ingushetia<span style="line-height: 1.66667;">, the infant mortality rate is close to 100 per 1,000 births, putting these regions in the same category as Angola, Chad, and Bangladesh. Tens of thousands of infants fall victim to influenza every year, and the proportion of children dying from pneumonia and tuberculosis is on the increase. Rickets, caused by a lack of vitamin D, and unknown in the rest of the modern world, is killing many young people. </span></p>
<p><span style="line-height: 1.66667;">Uterine damage is widespread, thanks to the 7.3 abortions the average Russian woman undergoes during childbearing years. Keeping in mind that many women avoid abortions altogether, the 7.3 average means that many women have a dozen or more abortions in their lifetime. </span></p>
<p><span style="line-height: 1.66667;">Even today, according to the State Statistics Committee, the average life expectancy for Russian men is less than 59 years—58 years and 11 months—while that for Russian women is 72 years. The combined figure is 65 years and three months. By comparison, the average life span for men in the United States is 73 years and for women 79 years. In the United States, life expectancy at birth for the total population has reached an all-time American high of 77.5 years, up from 49.2 years just a century ago. The Russian life expectancy at birth is 12 years lower. </span></p>
<p><span style="line-height: 1.66667;">After seventy years of socialism, 57 percent of all Russian hospitals did not have running hot water, and 36 percent of hospitals located in rural areas of Russia did not have water or sewage at all. Isn’t it amazing that socialist government, while developing space exploration and sophisticated weapons, would completely ignore the basic human needs of its citizens? </span></p>
<p><span style="line-height: 1.66667;">The appalling quality of service is not simply characteristic of “barbarous” Russia and other Eastern European nations: it is a direct result of the government monopoly on healthcare and it can happen in any country. In “civilized” England, for example, the waiting list for surgeries is nearly 800,000 out of a population of 55 million. State-of-the-art equipment is nonexistent in most British hospitals. In England, only 10 percent of the healthcare spending is derived from private sources. </span></p>
<p><span style="line-height: 1.66667;">Britain pioneered in developing kidney-dialysis technology, and yet the country has one of the lowest dialysis rates in the world. The Brookings Institution (hardly a supporter of free markets) found that every year 7,000 Britons in need of hip replacements, between 4,000 and 20,000 in need of coronary bypass surgery, and some 10,000 to 15,000 in need of cancer chemotherapy are denied medical attention in Britain. </span></p>
<p><span style="line-height: 1.66667;">Age discrimination is particularly apparent in all government-run or heavily regulated systems of healthcare. In Russia, patients over 60 are considered worthless parasites and those over 70 are often denied even elementary forms of healthcare. </span></p>
<p><span style="line-height: 1.66667;">In the United Kingdom, in the treatment of chronic kidney failure, those who are 55 years old are refused treatment at 35 percent of dialysis centers. Forty-five percent of 65-year-old patients at the centers are denied treatment, while patients 75 or older rarely receive any medical attention at these centers. </span></p>
<p><span style="line-height: 1.66667;">In Canada, the population is divided into three age groups in terms of their access to healthcare: those under 45, those 45–65, and those over 65. Needless to say, the first group, who could be called the “active taxpayers,” enjoys priority treatment. </span></p>
<p><span style="line-height: 1.66667;">Advocates of socialized medicine in the United States use Soviet propaganda tactics to achieve their goals. Michael Moore is one of the most prominent and effective socialist propagandists in America. In his movie, </span><em>Sicko</em><span style="line-height: 1.66667;">, he unfairly and unfavorably compares health care for older patients in the United States with complex and incurable diseases to healthcare in France and Canada for young women having routine pregnancies. Had he done the reverse—i.e., compared healthcare for young women in the United States having babies to older patients with complex and incurable diseases in socialized healthcare systems—the movie would have been the same, except that the US healthcare system would look ideal, and the UK, Canada, and France would look barbaric. </span></p>
<p><span style="line-height: 1.66667;">Now we in the United States are being prepared for discrimination in treatment of the elderly when it comes to healthcare. Ezekiel Emanuel is director of the Clinical </span>Bioethics<span style="line-height: 1.66667;"> Department at the US National Institutes of Health and an architect of Obama’s healthcare-reform plan. He is also the brother of </span>Rahm<span style="line-height: 1.66667;"> Emanuel, Obama’s White House chief of staff. Foster </span>Friess<span style="line-height: 1.66667;"> reports that Ezekiel Emanuel has written that health services should not be guaranteed to “individuals who are irreversibly prevented from being or becoming participating citizens. An obvious example is not guaranteeing health services to patients with dementia.” </span></p>
<p><span style="line-height: 1.66667;">An equally troubling article, </span>co-authored<span style="line-height: 1.66667;"> by Emanuel, appeared in the medical journal <em>The Lancet</em> in January 2009. The authors write that “unlike allocation [of healthcare] by sex or race, allocation by age is not invidious discrimination; every person lives through different life stages rather than being a single age. Even if 25-year-olds receive priority over 65-year-olds, everyone who is 65 years now was previously 25 years. Treating 65-year-olds differently because of stereotypes or falsehoods would be </span>ageist<span style="line-height: 1.66667;">; treating them differently because they have already had more life-years is not.” </span></p>
<p><span style="line-height: 1.66667;">Socialized medicine will create massive government bureaucracies—similar to our unified school districts—impose costly job-destroying mandates on employers to provide the coverage, and impose price controls that will inevitably lead to shortages and poor quality of service. It will also lead to </span>nonprice<span style="line-height: 1.66667;"> rationing (i.e., rationing based on political considerations, corruption, and nepotism) of healthcare by government bureaucrats. </span></p>
<p><span style="line-height: 1.66667;">Real “savings” in a socialized healthcare system could be achieved only by squeezing providers and denying care—there is no other way to save. The same arguments were used to defend the cotton farming in the South prior to the Civil War. Slavery certainly “reduced costs” of labor, “eliminated the waste” of bargaining for wages, and avoided “unnecessary duplication and parallelism.” </span></p>
<p><span style="line-height: 1.66667;">In supporting the call for socialized medicine, American healthcare professionals are like sheep demanding the wolf: they do not understand that the high cost of medical care in the United States is partially based on the fact that American healthcare professionals have the highest level of remuneration in the world. Another source of the high cost of our healthcare is existing government regulations on the industry, regulations that prevent competition from lowering the cost. Existing rules such as “certificates of need,” licensing, and other restrictions on the availability of healthcare services prevent competition and, therefore, result in higher prices and fewer services. </span></p>
<p><span style="line-height: 1.66667;">Socialized medical systems have not served to raise general health or living standards anywhere. In fact, both analytical reasoning and empirical evidence point to the opposite conclusion. But the dismal failure of socialized medicine to raise people’s health and longevity has not affected its appeal for politicians, administrators, and their intellectual servants in search of absolute power and total control. </span></p>
<p><span style="line-height: 1.66667;">Most countries enslaved by the Soviet empire moved out of a fully socialized system through privatization and insuring competition in the healthcare system. Others, including many European social democracies, intend to privatize the healthcare system in the long run and decentralize medical control. The private ownership of hospitals and other units is seen as a critical determining factor of the new, more efficient, and humane system.</span></p>
Yuri N. MaltsevThe Lesson of Soviet Medicine<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/soviet1.PNG?itok=l-bevdnT" width="240" alt="soviet1.PNG" />19549August 31, 2018 - 2:00 PMInterventionismEngland vs. the Price Systemhttps://mises.org/node/4813
<p>[This article was written from London and published in <em>Newsweek</em>, June 2, 1947.]</p>
<p>England's major economic troubles today seem not so much the result of its war losses, appalling as these were, as of its postwar policies. Temporary impoverishment was inevitable, but the postwar series of special crises in coal, food, and dollars was not.</p>
<p>The underlying assumption beneath the present strangling network of economic controls is that a free market and price system is at best a fair-weather system, a luxury a country can afford only when it is already well off. It is the precise function of free prices, however, to allocate production among thousands of different commodities and services and to relieve the most serious shortages most quickly by providing the greatest profit and wage incentives precisely where those shortages exist.</p>
<p>A free price system last fall would certainly have signaled the impending shortage of coal long before the Labour government was awake to its existence. It would have encouraged imports of coal from America then, instead of waiting until now. It would have enabled higher wages or bonuses to be paid for increased production. It would have attracted more men to mining. If the miners had been free to spend their money for things they really wanted, higher money wages would have meant higher real production incentives.</p>
<p>On May 7, Emanuel Shinwell, the minister of fuel and power, indiscreetly declared before a meeting of union delegates that "the organized workers of the country are our friends; as for the rest they don't matter a tinker's cuss."</p>
<p>This statement, which has since become a source of great embarrassment to the Labour Party, does supply a key to the real nature and animus of recent British planning. The essentially collectivist and egalitarian philosophy behind it begins to emerge more clearly. A ceiling has been put on imports and particularly on the purchase of so-called luxuries because "dollars are short" and "we cannot afford it." But who are "we"? Certainly not the individual who wishes to buy.</p>
<p>The real principle applied here is "If I can't afford to buy it, you shan't be allowed to buy it. If organized labor cannot have it nobody shall have it." This is most clearly illustrated in food. The overall food supply is not nearly as bad as is commonly supposed. Though it lacks interest and variety, the minister of food estimates in terms of calories it is only 6 percent below the prewar level. But analysis of its distribution is instructive. In April, wage rates in Britain were 68 percent above their 1939 level. Weekly wages were about 80 percent higher. The cost of living index, however, has gone up only 31 percent. Food considered separately had risen only 22 percent. This means that the average British worker is considerably better off in terms of goods than he was before the war.</p>
<p>One can say that this is a very good thing, but one cannot argue at the same time that production is low because nutrition is low (the coal miner in particular gets a much higher than average allotment) and one cannot call it austerity. Austerity is not being imposed on the British nation as a whole; it is being imposed through heavy taxes on the British middle and upper classes to subsidize the British working class.</p>
<p>Food prices are being subsidized to the extent of $1,572,000,000 a year in spite of the fact that the British worker is spending a much smaller percentage of his income for the same amount of food than he did before the war. It is the middle and upper classes who have now been reduced to something approaching the workingman's diet.</p>
<p>Insofar as austerity has been imposed on the whole British people, it consists in refusing to permit either consumers or producers freedom of choice. The consumer is not free to spend his money on things he himself wants but only on things government officials think are good for him. The producer is not free to make what he wishes but only what government officials think is good for the country.</p>
<p>The whole system of priorities, allocations, quotas, and licenses causes endless delays, keeps efficient concerns from expanding, and keeps inefficient concerns in business. Production is lost all around not merely because an army of men is created to issue orders rather than produce, but because producers themselves must spend so much of their time trying to get licenses and allocations instead of finding out how to reduce costs and prices and make the goods consumers really want.</p>
Henry HazlittEngland vs. the Price System<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/2992.jpg?itok=JQ0jyhO_" width="240" alt="2992.jpg" />4813August 30, 2018 - 2:00 PMInterventionismThe Crisis of Interventionismhttps://mises.org/node/5949
<div class="editorial-preface"><p><span style="line-height: 1.66667;">The interventionist policies as practiced for many decades by all governments of the capitalistic West have brought about all those effects which the economists predicted. There are wars and civil wars, ruthless oppression of the masses by clusters of self-appointed dictators, economic depressions, mass unemployment, capital consumption, famines.</span></p></div>
<p>However, it is not these catastrophic events which have led to the crisis of interventionism. The interventionist doctrinaires and their followers explain all these undesired consequences as the unavoidable features of capitalism. As they see it, it is precisely these disasters that clearly demonstrate the necessity of intensifying interventionism. The failures of the interventionist policies do not in the least impair the popularity of the implied doctrine. They are so interpreted as to strengthen, not to lessen, the prestige of these teachings. As a vicious economic theory cannot be simply refuted by historical experience, the interventionist propagandists have been able to go on in spite of all the havoc they have spread.</p>
<p>Yet the age of interventionism is reaching its end. Interventionism has exhausted all its potentialities and must disappear.</p>
<h4>The Exhaustion of the Reserve Fund</h4>
<p>The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.</p>
<p>In the field of public finance progressive taxation of incomes and estates is the most characteristic manifestation of this doctrine. Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets. In the field of industrial relations shortening the hours of work, raising wages, and a thousand other measures are recommended under the assumption that they favor the employee and burden the employer. Every issue of government and community affairs is dealt with exclusively from the point of view of this principle.</p>
<p>An illustrative example is provided by the methods applied in the operation of nationalized and municipalized enterprises. These enterprises very often result in financial failure; their accounts regularly show losses burdening the state or the city treasury. It is of no use to investigate whether the deficits are due to the notorious inefficiency of the public conduct of business enterprises or, at least partly, to the inadequacy of the prices at which the commodities or services are sold to the customers. What matters more is the fact that the taxpayers must cover these deficits. The interventionists fully approve of this arrangement. They passionately reject the two other possible solutions: selling the enterprises to private entrepreneurs or raising the prices charged to the customers to such a height that no further deficit remains. The first of these proposals is in their eyes manifestly reactionary because the inevitable trend of history is toward more and more socialization. The second is deemed "antisocial" because it places a heavier load upon the consuming masses. It is fairer to make the taxpayers, i.e., the wealthy citizens, bear the burden. Their ability to pay is greater than that of the average people riding the nationalized railroads and the municipalized subways, trolleys, and busses. To ask that such public utilities should be self-supporting, is, say the interventionists, a relic of the old-fashioned ideas of orthodox finance. One might as well aim at making the roads and the public schools self-supporting.</p>
<p>It is not necessary to argue with the advocates of this deficit policy. It is obvious that recourse to this ability-to-pay principle depends on the existence of such incomes and fortunes as can still be taxed away. It can no longer be resorted to once these extra funds have been exhausted by taxes and other interventionist measures.</p>
<p>This is precisely the present state of affairs in most of the European countries. The United States has not yet gone so far; but if the actual trend of its economic policies is not radically altered very soon, it will be in the same condition in a few years.</p>
<p>For the sake of argument we may disregard all the other consequences which the full triumph of the ability-to-pay principle must bring about and concentrate upon its financial aspects.</p>
<p>The interventionist in advocating additional public expenditure is not aware of the fact that the funds available are limited. He does not realize that increasing expenditure in one department enjoins restricting it in other departments. In his opinion there is plenty of money available. The income and wealth of the rich can be freely tapped. In recommending a greater allowance for the schools he simply stresses the point that it would be a good thing to spend more for education. He does not venture to prove that to raise the budgetary allowance for schools is more expedient than to raise that of another department, e.g., that of health. It never occurs to him that grave arguments could be advanced in favor of restricting public spending and lowering the burden of taxation. The champions of cuts in the budget are in his eyes merely the defenders of the manifestly unfair class interests of the rich.</p>
<p>With the present height of income and inheritance tax rates, this reserve fund out of which the interventionists seek to cover all public expenditure is rapidly shrinking. It has practically disappeared altogether in most European countries. In the United States the recent advances in tax rates produced only negligible revenue results beyond what would be produced by a progression which stopped at much lower rates. High surtax rates for the rich are very popular with interventionist dilettantes and demagogues, but they secure only modest additions to the revenue.<a class="see-footnote" id="footnoteref1_uufwzdb" title="In the United States the surtax rate under the 1942 Act was 52 per cent on the taxable income bracket $22,000–26,000. If the surtax had stopped at this level, the loss of revenue on 1942 income would have been about $249 million or 2.8 per cent of the total individual income tax for that year. In the same year the total net incomes in the income classes of $10,000 and above was $8,912 million. Complete confiscation of these incomes would not have produced as much revenue as was obtained in this year from all taxable incomes, namely, $9,046 million. Cf. A Tax Program for a Solvent America, Committee on Postwar Tax Policy (New York, 1945), pp. 116–117, 120." href="#footnote1_uufwzdb">1</a> From day to day it becomes more obvious that large-scale additions to the amount of public expenditure cannot be financed by "soaking the rich," but that the burden must be carried by the masses. The traditional tax policy of the age of interventionism, its glorified devices of progressive taxation and lavish spending, have been carried to a point at which their absurdity can no longer be concealed. The notorious principle that, whereas private expenditures depend on the size of income available, public revenues must be regulated according to expenditures, refutes itself. Henceforth, governments will have to realize that one dollar cannot be spent twice, and that the various items of government expenditure are in conflict with one another. Every penny of additional government spending will have to be collected from precisely those people who hitherto have been intent upon shifting the main burden to other groups. Those anxious to get subsidies will have to foot the bill themselves for the subsidies. The deficits of publicly owned and operated enterprises will be charged to the bulk of the population.</p>
<p>The situation in the employer-employee nexus will be analogous. The popular doctrine contends that wage earners are reaping "social gains" at the expense of the unearned income of the exploiting classes. The strikers, it is said, do not strike against the consumers but against "management." There is no reason to raise the prices of products when labor costs are increased; the difference must be borne by employers. But when more and more of the share of the entrepreneurs and capitalists is absorbed by taxes, higher wage rates, and other "social gains" of employees, and by price ceilings, nothing remains for such a buffer function. Then it becomes evident that every wage raise, with its whole momentum, must affect the prices of the products and that the social gains of each group fully correspond to the social losses of the other groups. Every strike becomes, even in the short run and not only in the long run, a strike against the rest of the people.</p>
<p>An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole doctrine of interventionism collapses when this fountain is drained off. The Santa Claus principle liquidates itself.</p>
<h4>The End of Interventionism</h4>
<p>The interventionist interlude must come to an end because interventionism cannot lead to a permanent system of social organization. The reasons are threefold.</p>
<p>First: Restrictive measures always restrict output and the amount of goods available for consumption. Whatever arguments may be advanced in favor of definite restrictions and prohibitions, such measures in themselves can never constitute a system of social production.</p>
<p>Second: All varieties of interference with the market phenomena not only fail to achieve the ends aimed at by their authors and supporters but bring about a state of affairs which — from the point of view of their authors' and advocates' valuations — is less desirable than the previous state of affairs which they were designed to alter. If one wants to correct their manifest unsuitableness and preposterousness by supplementing the first acts of intervention with more and more of such acts, one must go further and further until the market economy has been entirely destroyed and socialism has been substituted for it.</p>
<p>Third: Interventionism aims at confiscating the "surplus" of one part of the population and at giving it to the other part. Once this surplus is exhausted by total confiscation, a further continuation of this policy is impossible.</p>
<p>Marching ever further on the way of interventionism, first Germany, then Great Britain and many other European countries, have adopted central planning, the Hindenburg pattern of socialism. It is noteworthy that in Germany the deciding measures were not resorted to by the Nazis, but some time before Hitler seized power by Brüning, the Catholic chancellor of the Weimar Republic, and in Great Britain not by the Labor Party but by the Tory prime minister Mr. Churchill. The fact has been purposely obscured by the great sensation made in Great Britain about the nationalization of the Bank of England, the coal mines, and other enterprises. However, these seizures were of subordinate importance only. Great Britain is to be called a socialist country, not because certain enterprises have been formally expropriated and nationalized, but because all the economic activities of all citizens are subject to full control by the government and its agencies. The authorities direct the allocation of capital and of manpower to the various branches of business; they determine what should be produced and in what quality and quantity, and they assign to each consumer a definite ration. Supremacy in all economic matters is exclusively vested in the government. The people are reduced to the status of wards. To the businessmen, the former entrepreneurs, merely quasi-managerial functions are left. All that they are free to do is to carry into effect the entrepreneurial decisions of the authorities within a neatly delimited narrow field.</p>
<p>It has been shown that the managerial system, i.e., the assignment of ancillary tasks in the conduct of business to responsible helpers to whom a certain amount of discretion can be granted, is possible only within the frame of the profit system.<a class="see-footnote" id="footnoteref2_n4rnlz2" title="Cf. above, pp. 301–305." href="#footnote2_n4rnlz2">2</a> What characterizes the manager as such and imparts to him a condition different from that of the mere technician is that, within the sphere of his assignment, he himself determines the methods by which his actions should conform to the profit principle. In a socialist system in which there is neither economic calculation nor capital accounting nor profit computation, there is no room left for managerial activities either. But as long as a socialist commonwealth is still in a position to calculate on the ground of prices determined on foreign markets, it can also utilize a quasi-managerial hierarchy to some extent.</p>
<p>It is a poor makeshift to call any age an age of transition. In the living world there is always change. Every age is an age of transition. We may distinguish between social systems that can last and such as are inevitably transitory because they are self-destructive. It has already been pointed out in what sense interventionism liquidates itself and must lead to socialism of the German pattern. Most of the European countries have already reached this phase, and nobody knows whether or not the United States will follow suit. But as long as the United States clings to the market economy and does not adopt the system of full government control of business, the socialist economies of western Europe will still be in a position to calculate. Their conduct of business still lacks the characteristic feature of socialist conduct; it is still based on economic calculation. It is therefore in every respect very different from what it would become if all the world were to turn toward socialism.</p>
<p>It is often said that one half of the world cannot remain committed to the market economy when the other half is socialist, and vice versa. However, there is no reason to assume that such a partition of the earth and the coexistence of the two systems is impossible. If this is really the case, then the present economic system of the countries that have discarded capitalism may go on for an indefinite period of time. Its operation may result in social disintegration, chaos, and misery for the peoples. But neither a low standard of living nor progressive impoverishment automatically liquidates an economic system. It gives way to a more efficient system only if people themselves are intelligent enough to comprehend the advantages such a change might bring them. Or it may be destroyed by foreign invaders provided with better military equipment by the greater efficiency of their own economic system.</p>
<p>Optimists hope that at least those nations which have in the past developed the capitalist market economy and its civilization will cling to this system in the future too. There are certainly as many signs to confirm as to disprove such an expectation. It is vain to speculate about the outcome of the great ideological conflict between the principles of private ownership and public ownership, of individualism and totalitarianism, of freedom and authoritarian regimentation. All that we can know beforehand about the result of this struggle can be condensed in the following three statements:</p>
<ol><li><p>We have no knowledge whatever about the existence and operation of agencies which would bestow final victory in this clash on those ideologies whose application will secure the preservation and further intensification of societal bonds and the improvement of mankind's material well-being. Nothing suggests the belief that progress toward more satisfactory conditions is inevitable or a relapse into very unsatisfactory conditions impossible.</p></li><li><p>Men must choose between the market economy and socialism. They cannot evade deciding between these alternatives by adopting a "middle-of-the-road" position, whatever name they may give to it.</p></li><li><p>In abolishing economic calculation the general adoption of socialism would result in complete chaos and the disintegration of social cooperation under the division of labor.</p></li></ol><ul class="footnotes"><li class="footnote" id="footnote1_uufwzdb"><a class="footnote-label" href="#footnoteref1_uufwzdb">1.</a> In the United States the surtax rate under the 1942 Act was 52 per cent on the taxable income bracket $22,000–26,000. If the surtax had stopped at this level, the loss of revenue on 1942 income would have been about $249 million or 2.8 per cent of the total individual income tax for that year. In the same year the total net incomes in the income classes of $10,000 and above was $8,912 million. Complete confiscation of these incomes would not have produced as much revenue as was obtained in this year from all taxable incomes, namely, $9,046 million. Cf. <em>A Tax Program for a Solvent America,</em> Committee on Postwar Tax Policy (New York, 1945), pp. 116–117, 120.</li>
<li class="footnote" id="footnote2_n4rnlz2"><a class="footnote-label" href="#footnoteref2_n4rnlz2">2.</a> Cf. above, pp. 301–305.</li>
</ul>Ludwig von MisesThe Crisis of Interventionism<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/emptypocket1.PNG?itok=1JjSAd4E" width="240" alt="emptypocket1.PNG" />5949August 25, 2018 - 2:00 PMInterventionismWar Abroad, War at Homehttps://mises.org/node/43924
<p>Colonel Lawrence Wilkerson, speaking at a Ron Paul Institute conference this past weekend, predicted US troops would remain in Afghanistan another 50 years — just as they have in Germany and Korea. He also termed the ongoing US-backed campaign in Yemen the "most brutal war on earth," a war western media overwhelming ignore. </p>
<p>Colonel Douglas Macgregor at the same conference called Washington DC "the place where good ideas go to die." His years at the Pentagon, coupled with his experience leading US forces into Iraq during the first Gulf War, caused him to question the DC War Party in the most profound ways. Visiting the parents of an America soldier incinerated in a tank during that foray into Iraq, a foray with few US casualties otherwise, caused him to question not only his own missions but also the larger mission of US armed forces.</p>
<p>Both of these men now pose the same question: what is the goal? Why do seemingly endless military conflicts persist, despite lacking any constituency for their prosecution beyond the DC beltway? And why does US military strategy appear incoherent and counterproductive, when viewed through the lens of peace? Why can't we do anything about this, no matter whom we elect and no matter how much war fatigue resides in the American public?</p>
<p>The answer is not found in a facile denunciation of the military industrial complex or war profiteers, though both are very serious problems. The answer lies in understanding how the DC War Party operates. Its goals are not ours. It is not democratic; the government is not "us." It is not political; its architects are permanent fixtures who do not come and go with presidential administrations. It is not accountable; budgeting is nonexistent and gross failures only beget greater funding. It is above all not "economic" — it operates in an artificial "market," one created and perpetuated by wars and interventions ordinary people don't want. War socialism, or what former Congressman Barney Frank brilliantly termed "military Keynesianism," has taken on a life of its own. </p>
<p>Ludwig von Mises saw peace as the key to any liberal economic program, and argued strenuously against the fallacy of war prosperity. Even early in his career, before his horrific experiences as an officer in the Austro-Hungarian Army during World War I, he recognized the critical distinction between economy and war: the former characterized by exchange and cooperation, the latter marked by the worst form of state intervention:</p>
<blockquote><p>Only one thing can conquer war — that liberal attitude which can see nothing in war but destruction and annihilation, and which can never wish to bring about a war, because it regards war as injurious even to the victors. </p></blockquote>
<p>For Mises, war was worse than zero-sum. Even the prevailing party suffers, just as the shopkeeper suffers in Bastiat's "Parable of the Broken Window." The glazier's profit does not benefit society, just as the War Party's success in breaking other countries does not. But the loss is not only economic, it is also cultural and moral. War, the ultimate rejection of reason as a means of navigating human society, reduces our capacity for compassion and makes us complacent about atrocities. Worst of all, it emboldens and strengthens the domestic state — encouraging us to accept absurdities like TSA theater and heavily militarized SWAT teams operating in peaceful small towns. </p>
<p>While US troops remain mired throughout the Middle East, a subsurface political war heats up in the US. This cold civil war creates the kind of hyper-politicized society progressives once only dreamed of. Social media outlets encourage even the most ill-informed and ill-intentioned voices to spread hatred against those with differing views. Goodwill doesn't translate, so fake bravado hidden behind anonymity or distance are the order of the day. Epithets like "racist," fascist," "Nazi" and worse become cheap currency in the new vocabulary of meaningless words. Dissenting voices lose jobs, reputations, and access to popular platforms. Mobs form to attack political opponents in restaurants and shops, shout down campus events, and threaten online disclosure of their perceived enemies' personal information. </p>
<p>Meanwhile overt socialists like Elizabeth Warren, Bernie Sanders, Keith Ellison, and Alexandria Ocasio-Cortez lead the Democratic Party to demand government health schemes, guaranteed incomes, and "people's" ownership of corporations. The statist house organ known as the <em>Washington Post</em> calls for the word "socialism" to be "reclaimed" and viewed in positive terms. Ostensible conservatives like William Kristol, Max Boot, and Lindsey Graham follow suit and utterly divorce themselves from any notion of judicious government. They call for the destruction of Iran, escalation of tensions with nuclear-armed Russia, and belligerence toward China and North Korea. Donald Trump, despite some initial antiwar instincts, hunkers down with twitter while surrounding himself with rabidly interventionist advisers like John Bolton. </p>
<p>What can this environment yield other than a rapidly coarsening society and the increasing potential for outright war between nuclear nations?</p>
<p>Just as civilization cannot be divorced from civility in our personal comportment, economics cannot be divorced from war. The most important and immediate action we can take is to expose the gross economic fallacies of our day. The hawkishness of neoconservatives and the "democratic socialism" of progressives both lead in the same direction, toward economic destruction and war. If you think American society is polarized and prone to lashing out abroad now, what happens with a shrinking economy and 40% unemployment?</p>
Jeff DeistWar Abroad, War at Home<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/war1.PNG?itok=0EidTtYn" width="240" alt="war1.PNG" />43924August 20, 2018 - 1:30 PMInterventionismRedeeming the Industrial Revolutionhttps://mises.org/node/7408
<p>A destructive myth has wrapped itself around laissez-faire capitalism. It is the erroneous notion that the free market harms the "vulnerable" within society; specifically, it is said to harm women and children by cruelly exploiting their labor. The opposite is true. Laissez-faire capitalism offers the one element that the vulnerable need most to survive and to advance: choice. The most liberating choice individuals can have is the ability to support themselves and not be dependent upon anyone else for the food going into their mouths.</p>
<p>Using this myth as an entering assumption, historians have been extremely harsh in analyzing one of the most liberating phenomena in Western history: the Industrial Revolution. From the 18th through the 19th century, the world surged forward in technology, industry, transportation, trade, and life-changing innovations like cheap cotton clothing. Within two centuries, the worldwide per capita income is estimated to have increased tenfold and the population sixfold. The Nobel Prize–winning economist Robert Emerson Lucas Jr. <a href="http://en.wikipedia.org/wiki/Industrial_Revolution">stated</a>, "For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth…. Nothing remotely like this economic behavior has happened before." The dramatic advance in prosperity and knowledge was achieved without social engineering or centralized control. It came from allowing human creativity and self-interest to run free at a glorious gallop.</p>
<p>Abuses certainly occurred. Some can be laid at the door of governmental attempts to harness the energy and profits of the period. Other abuses occurred simply because every society includes inhumane or amoral people who act badly, especially for profit; this is not a criticism of the Industrial Revolution but of human nature. Moreover, economic advances far outstripped changes in culturally Victorian attitudes; in the 18th century, women and children were viewed as second-class citizens and, sometimes, as chattel. It was the engine of economic revolution that dragged the culture and law into similarly dramatic changes. When women left the countryside to seek employment and education, they became a social force that could not be denied. Thus, women's rights advanced remarkably during the late 19th century and could not have done so without the Industrial Revolution.</p>
<p>Unfortunately, the salutary connection between laissez-faire capitalism and women's rights has been lost. During the latter part of the 20th century, mainstream feminists crusaded to reverse the engine that contributed so heavily to women's equal status; instead of championing freedom in the market place, they embedded privilege for women into the law in the name of equality. The free market and laissez-faire were demonized as tools of oppression that required remedy through affirmative action, sexual-harassment laws, antidiscrimination lawsuits, quota systems, and a myriad of other workplace regulations.</p>
<p>During that process, the Industrial Revolution has been portrayed as the Great Satan in regard to the welfare of women and children. The portrayal relies upon the misrepresentation of fact and upon ideology.</p>
<h4>Misreprenting Facts Regarding Children</h4>
<p>Hideous images immediately come to mind when children and the Industrial Revolution are mentioned in the same sentence: a five-year-old being lowered by a rope into a coal mine, skeletal children working at unsafe textile mills, Dickens's Oliver proffering a wooden bowl as he asks for another scoop of gruel. These images are used to condemn the free market and the Industrial Revolution; sometimes they are used to praise the humanitarian politicians who passed child-labor laws to curb the cruelty. This analysis draws powerfully upon the understandable horror that decent people feel at the exploitation of any children. But it is seriously flawed.</p>
<p>One of its flaws: it misses a key distinction. Early-19th-century Britain had two forms of child labor: free children; and, parish or "pauper" children, who came under government auspices. Historians J.L. and Barbara Hammond, whose work on the British Industrial Revolution and child labor is considered definitive, recognized this distinction. The free-market economist Lawrence W. Reed, in his essay <a href="http://www.mackinac.org/3879">"Child Labor and the British Industrial Revolution,"</a> went one step further in stressing the importance of the distinction. He wrote, "Free-labor children lived with their parents or guardians and worked during the day at wages agreeable to those adults. But parents often refused to send their children into unusually harsh or dangerous work situations." Reed notes, "Private factory owners could not forcibly subjugate 'free labour' children; they could not compel them to work in conditions their parents found unacceptable."</p>
<p>By contrast, parish children were under the direct authority of government officials. Parish workhouses had existed for centuries, but sympathy for the downtrodden was also lessened by the fact that taxes for poor relief in 1832 were over five times higher than they had been in 1760. (Gertrude Himmelfarb's book <em><a href="http://books.google.com/books/about/The_idea_of_poverty.html?id=-09HAAAAMAAJ">The Idea of Poverty </a></em>chronicles this shift in attitude toward the poor from compassion to condemnation.) In 1832, partly at the behest of labor-hungry manufacturers, the Royal Poor Law Commission began an inquiry into the "the practical operation of the laws for the relief of the poor." Its report divided the poor into two basic categories: lazy paupers who received governmental aid; and the industrious working poor who were self-supporting. The result was the Poor Law of 1834, which statesman Benjamin Disraeli called an announcement that "poverty is a crime."</p>
<p>The Poor Law replaced outdoor relief (subsidies and handouts) with "poor houses" in which pauper children were virtually imprisoned. There, the conditions were made purposely harsh to discourage people from applying. Nearly every parish in Britain had a "stockpile" of abandoned workhouse children who were virtually bought and sold to factories; they experienced the deepest horrors of child labor.</p>
<p>Consider the wretched position of "scavenger" in textile factories. Typically, scavengers were young children — about six years old — who salvaged loose cotton from under the machinery. Because the machinery was running, the job was dangerous and terrible injuries were commonplace. "Fortunately" for businessmen willing to use the state to their advantage, government had no qualms about sending parish children to work under running machines. Most of the parish children had no alternative to such work other than starvation or a life of crime.</p>
<p>It is no coincidence that the first industrial novel published in Britain was <em><a href="http://books.google.com/books/about/Life_and_adventures_of_Michael_Armstrong.html?id=I-cDAAAAQAAJ">Michael Armstrong: Factory Boy </a></em>by Frances Trollope. Michael was apprenticed to an agency for pauper children. Nor is it coincidence that <a href="http://en.wikipedia.org/wiki/Oliver_Twist">Oliver Twist </a>was not abused by his parents or a private shopkeeper, but by brutal workhouse officials in comparison to whom Fagin was humanitarian. Remember that, at the age of twelve, with his family in debtor's prison, Dickens himself was a pauper child who slaved at a factory. Reed observes, the "first Act in Britain that applied to factory children was passed to protect these very parish apprentices, not 'free labor' children." The Act was explicit in doing so.</p>
<p>Thus, in advocating the regulation of child labor, social reformers asked government to remedy abuses for which government itself was largely responsible. Once more, government was a disease masquerading as its own cure.</p>
<h4>Misleading Ideology Regarding Women</h4>
<p>The flawed presentation of facts regarding child labor and the Industrial Revolution is paralleled by the flawed ideology by which the status of women is analyzed. Arguably, women were the primary economic beneficiaries of the Industrial Revolution. This was largely due to their low economic status in pre-Revolutionary times; they simply had more to gain than men.</p>
<p>When women had the opportunity to leave rural life for factory wages and domestic work, they poured into the cities in unprecedented numbers. To modern ears, the working and living conditions were terrible with many women turning to prostitution on the side in order to keep a roof over their heads. As terrible as the conditions might have been, however, a fundamental fact must not be ignored. The women themselves believed that flight into the city was in their self-interest, otherwise they would have never made the journey or they would have returned home to farm life in disillusionment. To say factory work "harmed" 18th- or 19th-century women is to ignore the demonstrated preference that they themselves expressed. It ignores the voice of their choices; clearly, the women believed it was an improvement.</p>
<p>A substantial portion of gender-feminist history is an attempt to ignore voices of the actual women making choices. A common method of doing so is to reinterpret the reality that surrounded the choices and, then, impose that reinterpretation so that the "choices" no longer appear to be free but seem coerced.<a class="see-footnote" id="footnoteref1_inisuat" title=" This differs from claiming that 18th- and 19th-century women had severely limited choices and were merely choosing the best option among a bad lot; the claim is that factory work was a step backward, a coerced choice, a poorer one than rural labor." href="#footnote1_inisuat">1</a></p>
<p>A key work in understanding the historical analysis of the Industrial Revolution rendered by gender feminism is Friedrich Engels's immensely influential <em><a href="http://www.marxists.org/archive/marx/works/1884/origin-family/">The Origin of the Family, Private Property and the State</a></em> (1884). Engels argued that the oppression of women sprang from the nuclear family but he was contemptuous of the notion that the family per se had subordinated women throughout history. Instead he placed the blame firmly on the shoulders of capitalism, which he believed had destroyed the prestige that women once enjoyed within the family.</p>
<p>Engels wrote,</p>
<blockquote><p>That woman was the slave of man at the commencement of society is one of the most absurd notions.… Women were not only free, but they held a highly respected position in the early stages of civilization and were the great power among the clans.</p></blockquote>
<p>Thus, pre-Industrial Revolutionary times were romanticized as a period in which women were empowered. Engels claimed that industrialization caused a separation between home and productive work through which the inequity that was the nuclear family evolved. Thus, women's labor became an important but a subordinate aspect of freeing men's labor to feed the capitalist machine. Presumably, the undeniable advances for women ushered in by the Industrial Revolution — including extended life span and political rights — were purchased at too high a cost.</p>
<p>Engels's analysis presented a problem to gender feminists, however. He assumed that men <em>as a sex</em> had no stake in exerting power over women because he analyzed human beings in terms of <em>class</em> affiliation — that is, their relationship to the means of production. Gender feminists wanted a framework of <em>sex</em> as well as <em>class</em> oppression. To explain why women (as distinct from men) have interests that conflict with capitalism, gender feminists reached beyond Engels in their analysis. They evolved a theory of patriarchy — of <em>male</em> capitalism — in which women were oppressed by male culture through the mechanism of laissez-faire capitalism. This stands in stark contrast to the earlier analysis of free-market opportunities being the social remedy for women who are culturally oppressed by male prejudice or privilege.</p>
<p>In more explicit terms, what does this remedy look like? An employer wants to maximize the profit on every dollar he or she spends. This creates a strong incentive to be blind to everything but the merit of an employee, to be blind to race, sex, religion or other characteristics other than productivity. A skilled woman who works for $1 less than a similarly skilled man will usually get the job. If she doesn't, then the unbiased competitor down the street will hire her and the biased one will lose a competitive edge. When this dynamic occurs on a massive scale, women workers are gradually able to demand increasingly higher wages and whittle down that $1 differential. The "leveling" factor does not happen immediately, it does not happen perfectly. But over time, out of pure self-interest, employers become blind to race and sex because it is in their self-interest. They do so in the name of profit, and everyone benefits.</p>
<p>Feminists who object to this leveling process are not advocating equality per se; they are advocating an equality that exists only for the "right" reasons and only upon the "proper" terms. Their objections to the Industrial Revolution are not empirical but ideological. Just as they do not like the voices of 18th- and 19th-century women who flocked to the factories, so too do they dismiss what the free market is saying about equality.</p>
<h4>Conclusion</h4>
<p>Whether the "slander" is due to a misrepresentation of fact or the imposition of ideology, the Industrial Revolution should bring a libel suit against history. Or, rather, against the majority of historians. Without dismissing the injustices that inevitably arise during any period, the Industrial Revolution established the freedom to which people have become so accustomed that they can treat freedom with contempt. Perhaps the saving grace of the Industrial Revolution's reputation will be the undeniable prosperity it created. Today, prosperity seems more respected than freedom even though the two are inextricably linked.</p>
<p>[<em>Originally published November 17, 2011.</em>]</p>
<ul class="footnotes"><li class="footnote" id="footnote1_inisuat"><a class="footnote-label" href="#footnoteref1_inisuat">1.</a> This differs from claiming that 18th- and 19th-century women had severely limited choices and were merely choosing the best option among a bad lot; the claim is that factory work was a step backward, a coerced choice, a poorer one than rural labor.</li>
</ul>Wendy McElroyRedeeming the Industrial Revolution<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/Industrialista.jpg?itok=bMdCdqa8" width="240" alt="Industrialista.jpg" />7408August 10, 2018 - 2:00 PMInterventionismThe New Bureaucratic Manhttps://mises.org/node/8498
<p>[Originally published May 19, 2010.]</p>
<p>There is something to Trotsky's <a href="http://mises.org/humanaction/chap2sec11.asp#Trotsky">vision</a> of man under communism. From all historical appearances, man under a totalitarian state functions differently than a man under liberty. And degrees of man exist as society slowly turns from liberty to slavery.</p>
<p>The prevailing view is that man under socialized healthcare will remain the same as man today — a man living under a pseudo-free market. In fact, some even believe that man may progress. In this view, the doctor we see today will, at the very least, remain the same under socialized health care. Don't bet on it.</p>
<h4>Unlucky Ducks</h4>
<p>I once worked as a software contractor for a state agency (forgive me). The building where I worked was not your typical government building. It had a modern feel, with a decorative moat detailing the front entrance. The front door — guarded, of course — was accessible via a walkway bridge of sorts.</p>
<p>It's not what you may be thinking; it was all very subtle and nice. However, the drop from the bridge to the mulch-covered, bush-laden moat was a good three feet.</p>
<p>One year, at the beginning of spring, a duck built a nest in the moat, under one of the many bushes. As her ducklings hatched and grew, it came time for them to search for water. However, despite their repeated attempts, the ducklings could not jump from the moat to the walkway bridge.</p>
<p>One of the employees in the building asked the building manager if he (the employee) could place a wooden ramp to allow the ducklings to waddle out of the moat. Being a good state employee himself, the building manager called the state department of natural resources for guidance. The answer: since ducks are migratory birds, no one could do anything.</p>
<p>The next morning, someone plastered official signs around the entrance, stating that any attempt to help the ducks was a violation of law. No ramp, no water, no food. And violators — you know this already — would be prosecuted to the fullest extent.</p>
<p>Soon we had a real scene. The mother duck would leave the moat and encourage her ducklings to follow. They couldn't, of course. She would march back and forth on the walkway bridge and quack in desperation. All the while, the guard at the entrance stood watch, stopping any attempt to help.</p>
<p>Repeated calls to the bureaucrats at the department of natural resources were answered by a repetition of laws and fines. And not one of the department employees was going to go against the rules, or even ask for an exemption, for any reason.</p>
<p>The ducklings died days later.</p>
<p>There you have it: upon joining the state, the department of resource folks — folks who likely dreamed of careers helping wildlife — became staunch bureaucrats enforcing rules over reason.</p>
<h4>Healthcare</h4>
<p>I have had many good experiences with doctors, nurses, and such. Our pre-Obamacare system was not perfect, but it suffered from nothing that the free market couldn't cure. Nevertheless, our elected officials believe otherwise. And they have a lot of support from the masses, who, I believe, are deluded.</p>
<p>Many proponents of socialized healthcare envision a system where their current providers remain, and society, hidden behind the state, pays the bills. But man changes by degree as liberty is lost. So the smiling doctor and caring nurse you trust will become the faces of the <a href="http://en.wikipedia.org/wiki/Nomenklatura">nomenklatura</a> and <a href="http://en.wikipedia.org/wiki/Apparatchik">apparatchiks</a>. They can become nothing else.</p>
<p>Yuri Maltsev, former economist under Gorbachev, detailed the truths of Soviet medicine in a recent Mises.org <a href="http://mises.org/daily/3650">article</a>. He wrote of drunken medical professionals roaming the halls of filthy hospitals — hospitals devoid of necessary equipment and supplies. And he wrote of a system where adherence to the rules of the bureaucracy trumped reason and sanity.</p>
<p>Meeting quotas was the mission, not serving the patients. So people died due to the rules of the bureaucracy, and no one could or would do otherwise.</p>
<p>Do we really believe the conduct of Russians under socialist rule was due to genetics or geography? Do we really believe there is something unique about Russians or Russia — and all the other groups who lived under socialist rule? And do we really believe Americans under that very same system would comport themselves in a different manner — as if altruism were genetic in the 50 states? Does anyone really believe any of that?</p>
<p>We have a tough case to make. We have the supporters of socialized healthcare dreaming that everything will remain the same, except someone else will pay the bill. It's a nice fantasy. But a fantasy, nonetheless. And fantasies can be hard to defeat at times.</p>
<p>On our side, we have the science of economics that says the system will collapse in the end. It will collapse under its own weight due to the state's inability to allocate resources efficiently. And just as important, we have history that shows how man behaves when under socialism — how man will behave until the system finally collapses. And let me tell you, that behavior ain't pretty.</p>
<p>Your doctor and nurse, no matter how nice today, will become the bureaucracy. They will see you in terms of state rules and regulations. They will push you out into the cold rather than risk having you die on site — and them having to suffer the consequences of a bad report to the central authorities.</p>
<p>Of course, your beloved healthcare professionals will not change overnight from Dr. Jekyll to Mr. Hyde. No, they will slowly change as the cloud of socialized medicine and accompanying bureaucracy incessantly rots their souls (as it rots our souls as well). It will happen — it has to.</p>
<p>To think otherwise is to be that mother duck, expecting officials of the state to rescue her ducklings because that is what employees of the department of natural resources are supposed to do: rescue wildlife.</p>
Jim FedakoThe New Bureaucratic Man<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/buraucrats1.PNG?itok=3wtRP32i" width="240" alt="buraucrats1.PNG" />8498August 4, 2018 - 2:00 PMInterventionismInequality of Wealth and Incomeshttps://mises.org/node/5920
<p>[The <i>Freeman</i>, May 1955]</p>
<p>The market economy — capitalism — is based on private ownership of the material means of production and private entrepreneurship. The consumers, by their buying or abstention from buying, ultimately determine what should be produced and in what quantity and quality. They render profitable the affairs of those businessmen who best comply with their wishes and unprofitable the affairs of those who do not produce what they are asking for most urgently. Profits convey control of the factors of production into the hands of those who are employing them for the best possible satisfaction of the most urgent needs of the consumers, and losses withdraw them from the control of the inefficient businessmen. In a market economy not sabotaged by the government the owners of property are mandataries of the consumers as it were. On the market a daily repeated plebiscite determines who should own what and how much. It is the consumers who make some people rich and other people penniless.</p>
<p>Inequality of wealth and incomes is an essential feature of the market economy. It is the implement that makes the consumers supreme in giving them the power to force all those engaged in production to comply with their orders. It forces all those engaged in production to the utmost exertion in the service of the consumers. It makes competition work. He who best serves the consumers profits most and accumulates riches.</p>
<p>In a society of the type that <a href="http://en.wikipedia.org/wiki/Adam_Ferguson">Adam Ferguson</a>, <a href="http://en.wikipedia.org/wiki/Claude_Henri_de_Rouvroy,_comte_de_Saint-Simon">Saint-Simon</a>, and <a href="http://en.wikipedia.org/wiki/Herbert_Spencer">Herbert Spencer</a> called militaristic and present-day Americans call feudal, private property of land was the fruit of violent usurpation or of donations on the part of the conquering warlord. Some people owned more, some less, and some nothing because the chieftain had determined it that way. In such a society it was correct to assert that the abundance of the great landowners was the corollary of the indigence of the landless. But it is different in a market economy. Bigness in business does not impair but improves the conditions of the rest of the people. The millionaires are acquiring their fortunes in supplying the many with articles that were previously beyond their reach. If laws had prevented them from getting rich, the average American household would have to forgo many of the gadgets and facilities that are today its normal equipment. This country enjoys the highest standard of living ever known in history because for several generations no attempts were made toward "equalization" and "redistribution." Inequality of wealth and incomes is the cause of the masses' well-being, not the cause of anybody's distress. Where there is a "lower degree of inequality," there is necessarily a lower standard of living of the masses.</p>
<h4>Demand for "Distribution"</h4>
<p>In the opinion of the demagogues inequality in what they call the "distribution" of wealth and incomes is in itself the worst of all evils. Justice would require an equal distribution. It is therefore both fair and expedient to confiscate the surplus of the rich or at least a considerable part of it and to give it to those who own less. This philosophy tacitly presupposes that such a policy will not impair the total quantity produced. But even if this were true, the amount added to the average man's buying power would be much smaller than extravagant popular illusions assume. In fact the luxury of the rich absorbs only a slight fraction of the nation's total consumption. The much greater part of the rich men's incomes is not spent for consumption, but saved and invested. It is precisely this that accounts for the accumulation of their great fortunes. If the funds which the successful businessmen would have ploughed back into productive employments are used by the state for current expenditure or given to people who consume them, the further accumulation of capital is slowed down or entirely stopped. Then there is no longer any question of economic improvement, technological progress, and a trend toward higher average standards of living.</p>
<p>When Marx and Engels in the <em>Communist Manifesto</em> recommended "a heavy progressive or graduated income tax" and "abolition of all right of inheritance" as measures "to wrest, by degrees, all capital from the bourgeoisie," they were consistent from the point of view of the ultimate end they were aiming at — viz., the substitution of socialism for the market economy. They were fully aware of the inevitable consequences of these policies. They openly declared that these measures are "economically untenable" and that they advocated them only because "they necessitate further inroads" upon the capitalist social order and are "unavoidable as a means of entirely revolutionizing the mode of production" — i.e., as a means of bringing about socialism.</p>
<p>But it is quite a different thing when these measures which Marx and Engels characterized as "economically untenable" are recommended by people who pretend that they want to preserve the market economy and economic freedom. These self-styled middle-of-the-road politicians are either hypocrites who want to bring about socialism by deceiving the people about their real intentions, or they are ignoramuses who do not know what they are talking about. For progressive taxes upon incomes and upon estates are incompatible with the preservation of the market economy.</p>
<p>The middle-of-the-road man argues this way: "There is no reason why a businessman should slacken in the best conduct of his affairs only because he knows that his profits will not enrich him but will benefit all people. Even if he is not an altruist who does not care for lucre and who unselfishly toils for the commonweal, he will have no motive to prefer a less efficient performance of his activities to a more efficient. It is not true, that the only incentive that impels the great captains of industry is acquisitiveness. They are no less driven by the ambition to bring their products to perfection."</p>
<h4>Supremacy of the Consumers</h4>
<p>This argumentation entirely misses the point. What matters is not the behavior of the entrepreneurs but the supremacy of the consumers. We may take it for granted that the businessmen will be eager to serve the consumers to the best of their abilities even if they themselves do not derive any advantage from their zeal and application. They will accomplish what according to their opinion best serves the consumers. But then it will no longer be the consumers that determine what they get. They will have to take what the businessmen believe is best for them. The entrepreneurs, not the consumers, will then be supreme. The consumers will no longer have the power to entrust control of production to those businessmen whose products they like most and to relegate those whose products they appreciate less to a more modest position in the system.</p>
<p>If the present American laws concerning the taxation of the profits of corporations, the incomes of individuals, and inheritances had been introduced about 60 years ago, all those new products whose consumption has raised the standard of living of the "common man" would either not be produced at all or only in small quantities for the benefit of a minority. The Ford enterprises would not exist if Henry Ford's profits had been taxed away as soon as they came into being. The business structure of 1895 would have been preserved. The accumulation of new capital would have ceased or at least slowed down considerably. The expansion of production would lag behind the increase of population. There is no need to expatiate about the effects of such a state of affairs.</p>
<p>Profit and loss tell the entrepreneur what the consumers are asking for most urgently. And only the profits the entrepreneur pockets enable him to adjust his activities to the demand of the consumers. If the profits are expropriated, he is prevented from complying with the directives given by the consumers. Then the market economy is deprived of its steering wheel. It becomes a senseless jumble.</p>
<p>People can consume only what has been produced. The great problem of our age is precisely this: Who should determine what is to be produced and consumed, the people or the state, the consumers themselves or a paternal government? If one decides in favor of the consumers, one chooses the market economy. If one decides in favor of the government, one chooses socialism. There is no third solution. The determination of the purpose for which each unit of the various factors of production is to be employed cannot be divided.</p>
<h4>Demand for Equalization</h4>
<p>The supremacy of the consumers consists in their power to hand over control of the material factors of production and thereby the conduct of production activities to those who serve them in the most efficient way. This implies inequality of wealth and incomes. If one wants to do away with inequality of wealth and incomes, one must abandon capitalism and adopt socialism. (The question whether any socialist system would really give income equality must be left to an analysis of socialism.)</p>
<p>But, say the middle-of-the-road enthusiasts, we do not want to abolish inequality altogether. We want merely to substitute a lower degree of inequality for a higher degree.</p>
<p>These people look upon inequality as upon an evil. They do not assert that a definite degree of inequality which can be exactly determined by a judgment free of any arbitrariness and personal evaluation is good and has to be preserved unconditionally. They, on the contrary, declare inequality in itself as bad and merely contend that a lower degree of it is a lesser evil than a higher degree in the same sense in which a smaller quantity of poison in a man's body is a lesser evil than a larger dose. But if this is so, then there is logically in their doctrine no point at which the endeavors toward equalization would have to stop. Whether one has already reached a degree of inequality which is to be considered low enough and beyond which it is not necessary to embark upon further measures toward equalization, is just a matter of personal judgments of value, quite arbitrary, different with different people and changing in the passing of time. As these champions of equalization appraise confiscation and "redistribution" as a policy harming only a minority — viz., those whom they consider to be "too" rich, and benefiting the rest (the majority) of the people, they cannot oppose any tenable argument to those who are asking for more of this allegedly beneficial policy. As long as any degree of inequality is left, there will always be people whom envy impels to press for a continuation of the equalization policy. Nothing can be advanced against their inference: if inequality of wealth and incomes is an evil, there is no reason to acquiesce in any degree of it, however low; equalization must not stop before it has completely leveled all individuals' wealth and incomes.</p>
<p>The history of the taxation of profits, incomes, and estates in all countries clearly shows that once the principle of equalization is adopted, there is no point at which the further progress of the policy of equalization can be checked. If, at the time the Sixteenth Amendment was adopted, somebody had predicted that some years later the income-tax progression would reach the height it has really attained in our day, the advocates of the amendment would have called him a lunatic. It is certain that only a small minority in Congress will seriously oppose further sharpening of the progressive element in the tax-rate scales if such a sharpening should be suggested by the administration or by a congressman anxious to enhance his chances for reelection. For, under the sway of the doctrines taught by contemporary pseudoeconomists, all but a few reasonable men believe that they are injured by the mere fact that their own income is smaller than that of other people and that it is not a bad policy to confiscate this difference.</p>
<p>There is no use in fooling ourselves. Our present taxation policy is headed toward a complete equalization of wealth and incomes and thereby toward socialism. This trend can be reversed only by the cognition of the role that profit and loss and the resulting inequality of wealth and incomes play in the operation of the market economy. People must learn that the accumulation of wealth by the successful conduct of business is the corollary of the improvement of their own standard of living and vice versa. They must realize that bigness in business is not an evil, but both the cause and effect of the fact that they themselves enjoy all those amenities whose enjoyment is called the "American way of life."</p>
Ludwig von MisesInequality of Wealth and Incomes<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/inequal.PNG?itok=-s7dzfY1" width="240" alt="inequal.PNG" />5920August 3, 2018 - 2:00 PMInterventionismThe Myth of Fed Independencehttps://mises.org/node/6451
<div class="editorial-preface">[<i>Excerpted from <a href="http://mises.org/document/3430/</i><i>The-Case-Against-the-Fed">The Case Against The Fed</a></i>.]</div>
<div class="editorial-preface"> </div>
<p>By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to the public; but at least the people’s representatives in Congress insure some accountability for these secret agencies.</p>
<p>It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation's vital monetary system, is accountable to nobody—and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.</p>
<p>Thus, when the first Democratic president in over a decade was inaugurated in 1993, the maverick and venerable Democratic chairman of the House Banking Committee, Texan Henry B. Gonzalez, optimistically introduced some of his favorite projects for opening up the Fed to public scrutiny. His proposals seemed mild; he did not call for full-fledged Congressional control of the Fed’s budget. The Gonzalez Bill required full independent audits of the Fed’s operations; videotaping the meetings of the Fed’s policy-making committee; and releasing detailed minutes of the policy meetings within a week, rather than the Fed being allowed, as it is now, to issue vague summaries of its decisions six weeks later. In addition, the presidents of the twelve regional Federal Reserve Banks would be chosen by the president of the United States rather than, as they are now, by the commercial banks of the respective regions.</p>
<p>It was to be expected that Fed Chairman Alan Greenspan would strongly resist any such proposals. After all, it is in the nature of bureaucrats to resist any encroachment on their unbridled power. Seemingly more surprising was the rejection of the Gonzalez plan by President Clinton, whose power, after all, would be enhanced by the measure. The Gonzalez reforms, the President declared, “run the risk of undermining market confidence in the Fed.”</p>
<p>On the face of it, this presidential reaction, though traditional among chief executives, is rather puzzling. After all, doesn’t a democracy depend upon the right of the people to know what is going on in the government for which they must vote? Wouldn’t knowledge and full disclosure strengthen the faith of the American public in their monetary authorities? Why should public knowledge “undermine market confidence”? Why does “market confidence” depend on assuring far less public scrutiny than is accorded keepers of military secrets that might benefit foreign enemies? What is going on here?</p>
<p>The standard reply of the Fed and its partisans is that any such measures, however marginal, would encroach on the Fed’s “independence from politics,” which is invoked as a kind of self-evident absolute. The monetary system is highly important, it is claimed, and therefore the Fed must enjoy absolute independence.</p>
<p>“Independent of politics” has a nice, neat ring to it, and has been a staple of proposals for bureaucratic intervention and power ever since the Progressive Era. Sweeping the streets; control of seaports; regulation of industry; providing social security; these and many other functions of government are held to be “too important” to be subject to the vagaries of political whims. But it is one thing to say that private, or market, activities should be free of government control, and “independent of politics” in that sense. But these are <em>government</em> agencies and operations we are talking about, and to say that <em>government</em> should be “independent of politics” conveys very different implications. For government, unlike private industry on the market, is not accountable either to stockholders or consumers. Government can only be accountable to the public and to its representatives in the legislature; and if government becomes “independent of politics” it can only mean that that sphere of government becomes an absolute self-perpetuating oligarchy, accountable to no one and never subject to the public’s ability to change its personnel or to “throw the rascals out.” If no person or group, whether stockholders or voters, can displace a ruling elite, then such an elite becomes more suitable for a dictatorship than for an allegedly democratic country. And yet it is curious how many self-proclaimed champions of “democracy,” whether domestic or global, rush to defend the alleged ideal of the total independence of the Federal Reserve.</p>
<p>Representative Barney Frank (D., Mass.), a co-sponsor of the Gonzalez Bill, points out that “if you take the principles that people are talking about nowadays,” such as “reforming government and opening up government—the Fed violates it more than any other branch of government.” On what basis, then, should the vaunted “principle” of an independent Fed be maintained?</p>
<p>It is instructive to examine who the defenders of this alleged principle may be, and the tactics they are using. Presumably one political agency the Fed particularly wants to be independent from is the U.S. Treasury. And yet Frank Newman, President Clinton's Under Secretary of the Treasury for Domestic Finance, in rejecting the Gonzalez reform, states: “The Fed is independent and that’s one of the underlying concepts.” In addition, a revealing little point is made by the <em>New York Times</em>, in noting the Fed’s reaction to the Gonzalez Bill: “The Fed is already working behind the scenes to organize battalions of bankers to howl about efforts to politicize the central bank” <em>(New York Times</em>, October 12, 1993). True enough. But why should these “battalions of bankers” be so eager and willing to mobilize in behalf of the Fed’s absolute control of the monetary and banking system? Why should bankers be so ready to defend a federal agency which controls and regulates them, and virtually determines the operations of the banking system? Shouldn’t private banks want to have some sort of check, some curb, upon their lord and master? Why should a regulated and controlled industry be so much in love with the unchecked power of their own federal controller?</p>
<p>Let us consider any other private industry. Wouldn’t it be just a tad suspicious if, say, the insurance industry demanded unchecked power for their state regulators, or the trucking industry total power for the ICC, or the drug companies were clamoring for total and secret power to the Food and Drug Administration? So shouldn’t we be very suspicious of the oddly cozy relationship between the banks and the Federal Reserve? What’s going on here? Our task in this volume is to open up the Fed to the scrutiny it is unfortunately not getting in the public arena.</p>
<p>Absolute power and lack of accountability by the Fed are generally defended on one ground alone: that any change would weaken the Federal Reserve’s allegedly inflexible commitment to wage a seemingly permanent “fight against inflation.” This is the Johnny-one-note of the Fed’s defense of its unbridled power. The Gonzalez reforms, Fed officials warn, might be seen by financial markets “as weakening the Fed’s ability to fight inflation” (<em>New York Times</em>, October 8, 1993). In subsequent Congressional testimony, Chairman Alan Greenspan elaborated this point. Politicians, and presumably the public, are eternally tempted to expand the money supply and thereby aggravate (price) inflation. Thus to Greenspan:</p>
<blockquote><div class="quote-in"><p>The temptation is to step on the monetary accelerator or at least to avoid the monetary brake until after the next election. Giving in to such temptations is likely to impart an inflationary bias to the economy and could lead to instability, recession, and economic stagnation.</p></div></blockquote>
<p>The Fed’s lack of accountability, Greenspan added, is a small price to pay to avoid “putting the conduct of monetary policy under the close influence of politicians subject to short-term election cycle pressure” <em>(New York Times</em>, October 14, 1993).</p>
<p>So there we have it. The public, in the mythology of the Fed and its supporters, is a great beast, continually subject to a lust for inflating the money supply and therefore for subjecting the economy to inflation and its dire consequences. Those dreaded all-too-frequent inconveniences called “elections” subject politicians to these temptations, especially in political institutions such as the House of Representatives who come before the public every two years and are therefore particularly responsive to the public will. The Federal Reserve, on the other hand, guided by monetary experts independent of the public’s lust for inflation, stands ready at all times to promote the long-run public interest by manning the battlements in an eternal fight against the Gorgon of inflation. The public, in short, is in desperate need of absolute control of money by the Federal Reserve to save it from itself and its short-term lusts and temptations. One monetary economist, who spent much of the 1920s and 1930s setting up Central Banks throughout the Third World, was commonly referred to as “the money doctor.” In our current therapeutic age, perhaps Greenspan and his confreres would like to be considered as monetary “therapists,” kindly but stern taskmasters whom we invest with total power to save us from ourselves.</p>
<p>But in this administering of therapy, where do the private bankers fit in? Very neatly, according to Federal Reserve officials. The Gonzalez proposal to have the president instead of regional bankers appoint regional Fed presidents would, in the eyes of those officials, “make it harder for the Fed to clamp down on inflation.” Why? Because, the “sure way” to “minimize inflation” is “to have private bankers appoint the regional bank presidents.” And why is this private banker role such a “sure way”? Because, according to the Fed officials, private bankers “are among the world’s fiercest inflation hawks” <em>(New York Times</em>, October 12, 1993).</p>
<p>The worldview of the Federal Reserve and its advocates is now complete. Not only are the public and politicians responsive to it eternally subject to the temptation to inflate; but it is important for the Fed to have a cozy partnership with private bankers. Private bankers, as “the world's fiercest inflation hawks,” can only bolster the Fed’s eternal devotion to battling against inflation.</p>
<p>There we have the ideology of the Fed as reflected in its own propaganda, as well as respected Establishment transmission belts such as the <em>New York Times</em>, and in pronouncements and textbooks by countless economists. Even those economists who would like to see more inflation accept and repeat the Fed’s image of its own role. And yet every aspect of this mythology is the very reverse of the truth. We cannot think straight about money, banking, or the Federal Reserve until this fraudulent legend has been exposed and demolished.</p>
<p>There is, however, one and only one aspect of the common legend that is indeed correct: that the overwhelmingly dominant cause of the virus of chronic price inflation is inflation, or expansion, of the supply of money. Just as an increase in the production or supply of cotton will cause that crop to be cheaper on the market; so will the creation of more money make its unit of money, each franc or dollar, cheaper and worth less in purchasing power of goods on the market.</p>
<p>But let us consider this agreed-upon fact in the light of the above myth about the Federal Reserve. We supposedly have the public clamoring for inflation while the Federal Reserve, flanked by its allies the nation’s bankers, resolutely sets its face against this short-sighted public clamor. But how is the public supposed to go about achieving this inflation? How can the public create, i.e., “print,” more money? It would be difficult to do so, since only one institution in the society is legally allowed to print money. Anyone who tries to print money is engaged in the high crime of “counterfeiting,” which the federal government takes very seriously indeed. Whereas the government may take a benign view of all other torts and crimes, including mugging, robbery, and murder, and it may worry about the “deprived youth” of the criminal and treat him tenderly, there is <em>one</em> group of criminals whom no government ever coddles: the counterfeiters. The counterfeiter is hunted down seriously and efficiently, and he is salted away for a very long time; for he is committing a crime that the government takes very seriously: he is interfering with the government’s revenue: specifically, the monopoly power to print money enjoyed by the Federal Reserve.</p>
<p>“Money,” in our economy, is pieces of paper issued by the Federal Reserve, on which are engraved the following: “This Note is Legal Tender for all Debts, Private, and Public.” This “Federal Reserve Note,” and nothing else, is money, and all vendors and creditors must accept these notes, like it or not.</p>
<p>So: if the chronic inflation undergone by Americans, and in almost every other country, is caused by the continuing creation of new money, <em>and if</em> in each country its governmental “Central Bank” (in the United States, the Federal Reserve) is the sole monopoly source and creator of all money, <em>who then</em> is responsible for the blight of inflation? Who except the very institution that is solely empowered to create money, that is, the Fed (and the Bank of England, and the Bank of Italy, and other central banks) <em>itself?</em></p>
<p>In short: even before examining the problem in detail, we should already get a glimmer of the truth: that the drumfire of propaganda that the Fed is manning the ramparts against the menace of inflation brought about by others is nothing less than a deceptive shell game. The culprit solely responsible for inflation, the Federal Reserve, is continually engaged in raising a hue-and-cry about “inflation,” for which virtually <em>everyone else</em> in society seems to be responsible. What we are seeing is the old ploy by the robber who starts shouting “Stop, thief!” and runs down the street pointing ahead at others. We begin to see why it has always been important for the Fed, and for other Central Banks, to invest themselves with an aura of solemnity and mystery. For, as we shall see more fully, if the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that the Fed, far from being the indispensable solution to the problem of inflation, is itself the heart and cause of the problem. What we need is not a totally independent, all-powerful Fed; what we need is no Fed at all.</p>
Murray N. RothbardThe Myth of Fed Independence<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/6365.jpg?itok=KgISAljI" width="240" alt="6365.jpg" />6451July 25, 2018 - 2:00 PMInterventionismFree-Market Medical Carehttps://mises.org/node/44022
<p>Recorded at the Mises Institute in Auburn, Alabama, on July 19, 2018.</p>
Timothy D. TerrellFree-Market Medical Care<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/40_Terrell_Free%20Market%20Medicine.jpg?itok=lmV0rXip" width="240" alt="Timothy Terrell" title="Timothy Terrell" />44022July 25, 2018 - 1:45 PMInterventionismMinimum Wagehttps://mises.org/node/43608
<p>Recorded at the Mises Institute in Auburn, Alabama, on July 18, 2018.</p>
Mark ThorntonMinimum Wage<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/35_MisesU2018_Thornton_750x516.jpg?itok=AN9KMEw_" width="240" alt="MisesU 2018 Mark Thornton" title="MisesU 2018 Mark Thornton" />43608July 24, 2018 - 12:15 PMInterventionismThe Government's War on Ladies Who Drive You Home from the Hospitalhttps://mises.org/node/43487
<p><a href="http://lfpress.com/news/local-news/london-bylaw-officers-sting-hospital-driver">For more than three years, </a> 58-year old cancer survivor Ethel Tari had “been a regular at an outpatient clinic at St. Joseph’s Hospital, providing rides to and from the clinic to patients who aren’t allowed to drive after being sedated for procedures such as endoscopies and colonoscopies.” But the long arm of the law finally caught up with Ethel, and she was fined $2,260 for owning and operating a vehicle for hire without a licence.</p>
<p>City Hall’s actions sparked an <a href="http://lfpress.com/news/local-news/support-pours-in-for-cancer-survivor-fined-2260-by-city-for-offering-rideless-patients-12-hospital-trips"> outrage </a> as Tari received <a href="http://lfpress.com/opinion/letters/letters-to-the-editor-march-3"> widespread public support </a> , nationally and internationally. However, much of the criticism levied against the City for its overzealous law enforcement subsided when <a href="https://london.ctvnews.ca/london-woman-fined-for-driving-patients-to-hospital-apologizes-1.3844552"> Tari, in a letter of apology, admitted </a> that she also provided transportation services to non-patients in the city and that she “had previously been warned by the City.”</p>
<h4><strong>Tari’s Confession Does Not Make Her Guilty</strong></h4>
<p>Tari confessed to providing reporter Jonathon Sher with incomplete and misleading information which “left the distinct impression that I was an innocent victim of an organized "sting" perpetrated by the bylaw enforcement department without justification."</p>
<p>Tari’s letter was a response to London bylaw enforcement chief Orest Katolyk’s <a href="http://lfpress.com/news/local-news/victim-recants-apologizes"> demand for an apology and retraction </a> . “Katolyk is satisfied with the apology and retraction and plans no further legal action against the woman, barring any further comments from her that might cause problems …”</p>
<p>Because Katolyk expressed his satisfaction with Tari’s apology, we can safely assume that he accepts the contents of her letter. Therein lies the rub. In consideration of her letter, and the impetus to government licensing laws, one can make a strong argument that Tari’s (seemingly forced) apology does not alter the fact that she was indeed an innocent victim of an organized "sting" perpetrated by the bylaw enforcement department without <em>moral</em> justification. Legal justification, yes. Moral justification, no!</p>
<h4><strong>The Licensing Scam</strong></h4>
<p>The government says the safety and wellbeing of consumers impels it to enact licensing laws, but this is, and has always been, a weak justification. When the government creates a licensure law, it is always at the behest of entrenched interests within the <em>specific occupation to be licensed</em>. Having successfully lobbied the government, the licensure requirements are established by the special interest groups themselves, and legally enforced upon new entrants to the occupation. Thus, as I have <a href="https://mises.org/wire/problem-government-licensing-schemes"> written before </a> ,</p>
<blockquote><p>Studies have shown that licensure reduces the quantity of people employed in the licensed occupations, which, because competition has been coercively suppressed, <a href="https://fee.org/articles/does-occupational-licensing-protect-consumers/"> often results in a reduced quality of services offered to the public </a> , which is the exact opposite of what the government promises us.</p>
<p>Unfortunately, <em>legal licensing</em> also creates <a href="https://danieljmitchell.wordpress.com/2017/01/23/occupational-licensing-how-government-created-barriers-to-work-are-undermining-mobility-and-americas-economy/"> unemployment and underemployment </a> which disproportionately <a href="http://ij.org/report/license-work-2/">affects the poor</a>, while producing higher incomes for those employed in the <em>protected</em> occupations, <a href="http://www.learnliberty.org/blog/who-does-occupational-licensing-protect/"> higher prices for consumers </a> , with fewer options available to consumers, thus moving us further away from the government’s stated goal.</p></blockquote>
<p>The experience of Ethel Tari is consistent with this theme. First, she appears to be a woman of modest means who is prevented from earning additional income because of the cost of obtaining a government license.</p>
<p>Second, the unappealing alternative for patients (consumers) is a higher price for a licensed taxi or Uber driver because Tari cannot afford the cost of obtaining a government license.</p>
<p>Third, the expensive government license reduces the quality of service offered to the public (patients). As reported in the <a href="http://lfpress.com/news/local-news/london-bylaw-officers-sting-hospital-driver"> London Free Press </a> :</p>
<blockquote><p>The possible loss of her [Tari’s] service has angered doctors and staff, said Chris Vinden, who performs endoscopies and colonoscopies.</p>
<p>“From my point of view, she is providing a service to the hospital . . . It makes the hospital run more efficiently,” he said.</p>
<p>Between 40 and 50 people come each day the clinic is open, and while most arrange for another adult to drive them, some do not, either because their spouse can’t afford to take a day off, they’re elderly and don’t have friends who drive or they don’t have an adult friend to ask.</p>
<p>“(She) solved a lot of problems for us,” Vinden said.</p>
<p>If she can’t resume her service, some patients may delay needed procedures, he said.</p></blockquote>
<h4><strong>Licensing is Not About Consumer Protection</strong></h4>
<p>Tari’s letter revealed that the municipal government told her she would be in violation of the licensing bylaw <em><u>only if she accepted money</u></em> for driving a person from point A to point B. In other words, an unlicensed driver can legally provide a <em>free</em> car ride to anyone else, but when money is accepted in exchange for the service, the government says the driver is a criminal.</p>
<p>If we believe the government’s justification for licensure laws, then we must also believe that unlicensed drivers pose a considerable threat to the safety and wellbeing of unsuspecting consumers, regardless of whether a fee is charged for the service. But this is not the view of the government. The truth is that very few people can afford to give free car rides to others, which means they do not pose a threat to the livelihood of taxi drivers. Thus, taxi drivers do not complain and the government says “free” rides are legal. The government does not fine or otherwise prosecute the “free” drivers because the purpose of the licensing bylaw is to restrict competition, not to protect the public.</p>
<h4><strong>Conclusion</strong></h4>
<p>The government deserves to be heavily criticized for its treatment of Ethel Tari, and Tari deserves our sympathy.</p>
<p>While Tari did not reveal all the facts when her story was first reported, we must ask ourselves why she was not candid. It appears she was attempting to evade the efforts of the City to enforce an immoral law in order to continue to earn a modest income and provide a valuable service to hospital patients.</p>
<p>The position taken by London’s bylaw enforcement chief Orest Katolyk, as well as <a href="http://lfpress.com/news/local-news/london-city-hall-briefs"> City manager Martin Hayward </a> , is that they did everything by the book, i.e. they do not issue fines until warnings have been given. Period. End of story. No comment from these bureaucrats or the politicians about the counterproductive effects of the licensing bylaw itself.</p>
<p>More to the point, if licensing laws help to facilitate a well-functioning society, we should expect the government itself to religiously abide by its own laws, but it often does not. For example, a <a href="https://londonnews1.com/2017/04/meet-the-new-slumlord-same-as-the-old-slumlord-the-city-of-london/"> story published last year </a> found City Hall to be in non-compliance with its own <em>Residential Rental Units Licensing By-law</em>. Prior to publication, six bureaucrats, including Orest Katolyk and Martin Hayward, were given an opportunity to comment on the story. None replied.</p>
<p>Do not confuse legality with morality. We cannot reasonably claim to live in a highly civilized society when some people (e.g. the government) are above the law. Nor can we claim to be highly civilized when some people (e.g. the government) grant themselves legal authority to forcibly prevent other people from voluntarily interacting with each other, as with Ethel Tari and her customers.</p>
Lee FridayThe Government's War on Ladies Who Drive You Home from the Hospital<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/Hospital_Entrance_Directory_sign.jpg?itok=GlrY4LYk" width="240" alt="Hospital_Entrance_Directory_sign.jpg" />43487July 21, 2018 - 6:00 AMInterventionismIs Further Intervention a Cure for Prior Intervention?https://mises.org/node/6523
<div class="editorial-preface"><p>[<a href="https://mises.org/library/freedom-and-free-enterprise-essays-honor-ludwig-von-mises"><em>On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises</em></a> (1956)]</p></div>
<blockquote><p>All varieties of (government) interference with the market phenomena not only fail to achieve the ends aimed at by their authors and supporters, but bring about a state of affairs which — from the point of view of the authors' and advocates' valuations — is less desirable than the previous state of affairs which they were designed to alter. If one wants to correct their manifest unsuitableness and preposterousness by supplementing the first acts of intervention with more and more of such acts, one must go farther and farther until the market economy has been entirely destroyed and socialism has been substituted for it. (Ludwig von Mises, <em><a href="http://mises.org/resources/3250/Human-Action">Human Action</a></em>, p. 854)</p></blockquote>
<p>The mass myopia of our age has been a reactionary reverence for government intervention. When anything goes wrong, from a train wreck to a change in stock market prices, the craven crowds always clamor for just one more law. Throughout the world there is a spirit of egalitarianism and trust in government omnipotence that blinds people to the inevitable and undesirable consequences of the very intervention they currently advocate. There can be little question that the great majority of our fellow men believe that governmental action is the best answer to every economic problem of poverty or prosperity.</p>
<p>This general trend toward government intervention has been spurred on by the thought that majorities can continue to take by legal force from the rich and give to the poor to the perpetual benefit of society as a whole. Government intervention is therefore considered a moral and economic weapon to be used for the welfare of all the "have-nots." The crusade for creature comforts is no longer considered to be a struggle against the niggardliness of nature. Instead, it is dreamily idealized as a campaign for the political allotment of each group's "fair share" of the wealth produced by others.</p>
<p>The most astonishing phase of this development has been the rapidity with which more and more of the despoiled "haves" are joining the interventionists' cult, formed for the express purpose of leveling down their supposedly unearned wealth. Every day new groups of "haves" are joining the pressure groups who feel that "there ought to be a law" to end their troubles by protecting them from the operations of a free market. Seldom do they ask for a repeal of the laws which are so often the root of their troubles. In accordance with the religion of the day, they ask for new legal restrictions which they think will protect them from the ills produced by the interventional laws already on the statute books.</p>
<p>In the United States, an example of this trend is clearly seen in the demand arising from some employers and their associations for the individual states to enact so-called right-to-work laws. The proposed laws would outlaw all employment contracts which specify that all employees must pay dues to the union chosen by the majority of an employer's employees in a government supervised election. Such contracts, even though they represent the free and voluntary wishes of the employers and the employees concerned, would be declared to be against public policy and therefore illegal. A growing number of employers believe that such laws will bring about a better balance of the scales in the "class warfare" supposedly going on between "labor" and management. This would seem to indicate that many present-day employers have neither faith in freedom nor an understanding of the economic principles which reveal that a free market is the most efficient means that free, peaceful, and intelligent men can use for the advancement of individual men as well as the general welfare.</p>
<p>Those who advocate a legal ban on union shops seldom realize that they are sealing their own doom and placing their future fate in the hands of legislators who are only too eager to assume control of all economic activity. They fail to see that such laws are basically a surrender of their rights to employ whomever they might choose under free-market conditions. They seem to believe that the intervention they support is good intervention because, in their opinion, it will strengthen their side against the common enemy "labor." They believe it will increase their freedom and enchain their "opponents." Alas, employers, too, are victims of the current tendency to think of wealth production in terms of "class warfare," rather than in terms of social cooperation for mutual advantage in a free and peaceful market.</p>
<p>These employers, commonly considered as "haves," are actually advocating a program outlined by Karl Marx for the destruction of the very capitalistic system which has provided them with their present wealth and positions. They should know better. If they will not read, study and digest the 881 pages of <em>Human Action</em>, they should at least examine carefully the much shorter <em>Communist Manifesto</em> pamphlet written by Marx and Engels in 1848.</p>
<p>The Communist Manifesto tells us that</p>
<blockquote><p>The immediate aim of the Communists is … a conquest of political power by the proletariat.… In this sense, the theory of the Communists may be summed up in the single sentence: Abolition of private property.… Property, in its present form, is based on the antagonism of capital and wage-labor.… The proletariat will use its political supremacy, to wrest, by degrees, all capital from the bourgeoisie, to centralize all instruments of production in the hands of the State, i.e., of the proletariat organized as the ruling class.…</p>
<p>Of course, in the beginning, this cannot be effected except by means of despotic inroads on the rights of property, and on the conditions of bourgeois production; by means of measures, therefore, which appear economically insufficient and untenable, but which, in the course of the movement, outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionizing the mode of production.</p></blockquote>
<p>This document, which represents the early thinking of Marx, provides a blueprint for all government intervention. It is in line with the Mises thesis that government intervention, that results in a successful demand for more and more government intervention, must finally lead to the elimination of the market economy and the establishment of a socialist dictatorship.</p>
<p>There are, of course, many methods for destroying wealth and setting up a dictatorship, but the original method of the Marxists, as mentioned above, was to propose crippling intervention which would be "economically insufficient and untenable." Then, when this original intervention made matters worse, they could easily create a demand for further "despotic inroads on the rights of property" until finally all economic activity was directed by the Socialist State as the sole owner or controller of the means of production. Marx decreed that this program of government intervention would eventually lead to the abolition of private property and the establishment of the Socialist State. Mises agrees. It was a series of such "despotic inroads" on private property that eventually converted the German economy into a National Socialist dictatorship. Such step-by-step intervention, if followed to its logical conclusion, will produce the same results in any country, even in the United States.</p>
<p>The major mistake in the thinking of those who advocate the so-called right-to-work laws is their thought that these laws will remedy some of the sins of the federal labor laws that now grant special privileges to labor unions. By the sagacious use of these privileges, labor unions extort higher than free-market incomes for their members at the expense of the general welfare. This situation results from popular blindness to the fact that in a moral society the only way anyone, including unions and their members, can honestly earn more wealth is to create it and not take it from others.</p>
<p>The advocates of such laws accept the fallacious idea, found in many classical economic textbooks, that wealth is distributed after it is produced. While much wealth is distributed, in the sense of being transported geographically, it is not distributed in the popular sense that the entrepreneur distributes or divides the proceeds of a contemplated or completed business venture into rent, wages, and interest, with the remainder labelled as profit or loss. Few, all too few, even among those called economists, seem to realize that in a free-market economy the owner of every factor of production receives the full market value of its contribution, as it is freely evaluated at the time the owner of that factor agrees to participate in the joint venture. This must be true, if we believe that free men only make and sign contracts which provide each signer with what he considers the best terms available to him at that time.</p>
<p>All free-market contracts or agreements seek a share of the benefits emanating from the increased division of labor and the resulting exchanges. In a free economy these exchanges take place at prices set at the margin where supply and demand balance as the result of the relative subjective values placed on all the offered products by all those participants who both contribute to and share in such market exchanges. These prices will be arrived at by a mental process wherein each participant arranges his satisfiable desires according to a scale of values. Each participant then exchanges his contributions for a mutually acceptable medium of exchange to the point where further quantities of that medium would no longer, in his opinion, buy goods or services which the participant values higher than the pleasures of rest (disutility of further labor) or those things which he has produced or can produce without the cooperation of others.</p>
<p>Too many people fail to understand the underlying principles of voluntary exchange in a free market. This ignorance of economic principles leads many to believe that when labor unions use their government-granted privileges to take by force (steal) that wealth which belongs to others, they are registering "social gains" for all workers. This is part and parcel of the Marxian class warfare doctrine that wealth production is a battle between capitalists and workers and that any gain for some workers is a loss for capitalists and therefore a gain for all workers. Unfortunately many people tend to place themselves mentally in the position of those who get these so-called gains, obtained by the legal looting of society by labor unions. The majority of people today do not realize that they are often the very ones who must pay for these so-called social gains in the form of higher prices, lower wages, and, all too frequently, chronic unemployment. They are not co-gainers. They are the losers. Popular acceptance of this fallacy permits labor unions to go on their merry way of extortion with encouragement from the very folks they are injuring.</p>
<p>Unless the popular thinking on this matter is corrected, these immoral and uneconomic activities of labor unions will eventually create a situation for which the popular solution may well be a socialist dictatorship. If this possibility is to be averted, those who are better informed must pierce the fog and show beyond any per-adventure of doubt that the currently popular activities of labor unions are injurious to the general welfare and result in relatively lower living standards than would prevail in a free-market economy.</p>
<p>The fact that many current labor union practices are injurious to the general welfare does not mean that all actions of all labor unions must of necessity be considered evil or uneconomic. There are many truly economic functions that labor unions can perform. In a free and moral society, unions would be solely voluntary groups organized to help their members by helping them to increase their production and thereby their contributions to society. Their chief purpose would be to raise the standards of workmanship and production. They would then be a force for the general economic good of society as well as their members.</p>
<p>In the last half century, popular and professional opinion has swept from one extreme to another. Fifty years ago, it was thought that unions could do no good. Today, there is a strong tendency to think that unions can do no wrong. Even their physical violence is accepted with complacency. They are a law unto themselves, free from legal liability for their lawlessness. It is both necessary and important that we distinguish between the activities of unions that are economically beneficial and those that are destructive of life, property, and social cooperation.</p>
<p>Because of the recent activities of most labor unions, there is a growing tendency for those who have some understanding of economics to associate all union activities, and thus unions themselves, with evil or uneconomic actions. We do not do this with those professional organizations that now set high standards of ability and performance for all their members and prospective members. At another time and clime, it is entirely possible that groups called unions might more closely resemble our best professional organizations in that they might set and maintain high standards of membership and performance. They might then attract all the better workers and, if such were the case, employers might find that union members were much better workers than nonunion members. If memberships in such unions were open to all qualified workers, they would no longer represent a group that was seeking selfish privileges at the expense of the general welfare. They would be groups straining to increase the quantity and quality of production so that all market participants would receive higher returns for their contributions. If we can visualize such a situation, we will then be better able to understand why employers should be free to sign contracts to hire only such high type workers and why the so-called right-to-work laws would interfere with the main objective of social cooperation — the increased satisfactions of all the individual participants in the market.</p>
<p>What is the "right-to-work?"</p>
<p>Since the days of Adam and long before Adam Smith, man has been vitally concerned with his right to live. God so created man that he cannot live without continually refueling and refurbishing his body. Men must work in order that men may live. Men thus have an absolute need and, therefore, an inherent right to work. This is an elementary fact which very few question.</p>
<p>This inherent right-to-work, like the allied right to the pursuit of happiness, is God-given. If we assume that it is given equally to every man, and to be consistent we must, we must also assume that the rights of one man, properly understood, cannot conflict with the rights of another. It must then follow that the inherent right to work is merely the right of each individual man to use <em>his</em> mind, physical abilities, and accumulated capital to produce those things which he needs and wants in accordance with his own individual values, abilities, and moral desires. It does not include any right for one man to impose his will on any other man. Nor does it compel any man to employ any other man, union member or nonunion member.</p>
<p>Intelligent men know and understand the underlying economic principle of the division of labor, whereby men by mutual cooperation can increase their total production and thereby the satisfactions of all who voluntarily participate in such social cooperation. This system of cooperative specialized production and exchange, known as the free-market economy, permits each participant to profit by his contribution to the increased satisfaction of other participants. If, at any time, any participant did not consider his market receipts more valuable to him than his contributions, he need merely refrain from market participation.</p>
<p>In a free-market economy, every human act of social cooperation is undertaken with the expectation that the results will improve the condition or satisfactions of each participant. If this were not so, the individuals would not voluntarily participate. These principles of mutual advantage apply to all market transactions, including employment agreements freely negotiated between employers and employees. Agreement as to terms can be reached only when all parties thereto expect that the results will increase their satisfactions over what they would be, if they did not so agree.</p>
<p>Unfortunately, few people understand these economic principles. Confused by our modern complicated society, many people seem to think that one party to an agreement is in a position to impose his will on the other. In the case of employment agreements, it is erroneously assumed that, left alone, employers can force their terms on employees. This fallacious belief leads to a demand that the government should intervene to "protect" employees by passing laws that limit and regulate the terms and conditions of private as well as public employment.</p>
<p>Some such laws seek to give certain men, usually union members, a legal "right-to-work" for employers who would prefer to hire other men, usually nonunion members, willing to work for terms more satisfactory to the employers. Such coercive measures have led some men to believe that new laws should be passed which would give nonunion men a legal "right-to-work" for employers who have agreed to hire only union members. These man-made legal "rights-to-work" for specified employers should not be confused with our God-given inherent right-to-work for ourselves or for others who voluntarily seek our services at terms that are mutually satisfactory. The one, government intervention, is a coercive unequal right that forcefully limits the equal rights of others; the other, God-given, is an equal right of free men that places no burden on any man.</p>
<p>The so-called right-to-work laws would outlaw "union shop" agreements, whereby employers contract to hire only those who agree to join the majority selected union within a specified time period. Proponents of such laws maintain that where union shops are legal, unions can and do stop the employment of those who will not join or pay tribute to the union. That, of course, is true. Such proponents then argue that union shop contracts prevent nonunion men from earning a living in their chosen fields. This, they hold, is a violation of the inherent right-to-work of men who refuse to join or pay tribute to the union of the majority. Such logic assumes that men have an inherent right-to-work for a particular employer, whether he wants them or not.</p>
<p>Do men have such an inherent right? In this writer's opinion they do not.</p>
<p>We should keep our minds on the chief objective of a free society. This should always be the pursuit and maintenance of economic freedom with its two basic corollaries: (1) The right to own and enjoy all property rightfully earned or received; (2) the right to make and sign contracts with others for the mutual advantage of the participants, provided such contracts do not trespass on the property or equal rights of other free and moral men. This right, to make and sign contracts, includes the right of employers and employees to make and sign mutually agreeable contracts for moral employment.</p>
<p>In a free economy, all such mutually satisfactory employment agreements would be valid. On the other hand, all employment relations maintained by compulsion would be invalid. No employer or prospective employer has any right to employ any person who does not want such employment at the terms proffered. Likewise, no employee or prospective employee has any right to employment with any specific employer, if that employer does not desire him as an employee at the terms for which that person is willing to labor. In a free society, all employment must be mutually advantageous in the long run to employers, employees, and consumers. If, for any reason or lack of reason, either party to an employment agreement finds the agreement unsatisfactory or disadvantageous in any manner, he should be free to terminate that agreement and accept a more satisfactory one as soon as his contractual obligations have been fulfilled. In a free economy, this right to discontinue employment applies equally to employers and employees. In the absence of a prior voluntary agreement, no employer has any valid right to the services of any free man. Likewise, in the absence of a prior voluntary agreement, no man has any valid right to a job with any specific employer.</p>
<p>It is apparently difficult today for many people to understand that while people do have a right to work, they do not have a right to any specific job. When the late Calvin Coolidge was governor of Massachusetts, he met the issue squarely at the time some Boston policemen went out on strike. He stated simply and clearly that no one had the right to be a policeman. Failure to grasp this principle is the crux of popular confusion about the Oppenheimer, Ladejinsky, and many other cases in current headlines.</p>
<p>In the absence of prior agreements, people do not have a right to a job with the government or any other specific employer. In a free economy all employment is agreed on at mutually satisfactory terms. No employer has any right to employ an unwilling worker. Likewise, no job applicant has an inherent right to employment with any employer who does not want his services. A voluntarily signed union shop contract indicates that, under prevailing conditions, the employer prefers not to hire nonunion workers. He has every right to sign such a contract and would only do so if he thought it would be economically advantageous.</p>
<p>One of the most valuable attributes of freedom is the right of free men to choose their associates, so long as that association is mutually satisfactory and not in conflict with the equal rights of others. This right of free association includes the right of men to reject association with those whom they consider objectionable. If these rights are exercised wisely and economically, individuals, and thus society, will benefit. If they are misused, those responsible and, to a lesser extent, all others will suffer.</p>
<p>In a free economy, men have a right to associate voluntarily in labor unions. Likewise men have a right to refuse to join any such unions. Unions, as organizations of free men, also have the right to accept or reject applications for membership and suffer the consequences. So long as all this is done voluntarily, without force or coercion or the threat thereof, no free man need complain except to point out the wisdom or lack of wisdom of any particular action.</p>
<p>In a free society, men will join unions and pay dues only when they consider it is to their advantage to do so. if the laws did not grant union members privileges over and above those of nonunion members, few men would join unions unless those unions, operating in a free economy, could help them get and keep better paid positions. To do this, unions would have to help their members locate and fill more productive jobs. This and this alone would entitle union members to increased real wages. All union dues and fees would then represent only a fraction of this increased wealth production.</p>
<p>Thus, unions, if stripped of their special legal privileges, would only exist where they contributed to the increased satisfactions of society as well as of their members. No worker would voluntarily contribute to a union treasury, unless he believed that the benefits received, or expected to be received, would exceed the costs to him.</p>
<p>In a free society, employers also enjoy the right of free association. They are entitled to employ any applicant they wish, provided the contemplated type of activity is acceptable in a free and moral market society and the terms of employment are acceptable to the applicant. Employers also have a right to reject any or all applicants and suffer the consequences. They have a right to hire only union members or only nonunion members, if they can find such applicants willing to accept their terms. If they refuse employment to the best available applicants because of personal antipathies, their economic losses may be considerable. If they seek the greatest economic advantages or profits, they must select their employees with economic efficiency and profits uppermost in their minds. If they are to survive in a highly competitive market for consumer dollars, they must employ only those who provide the most efficient service desired for the wages paid. In a free market, supply and demand will determine wage rates. If all men are employed at their market wage, that is the highest wage any employer believes he can profitably recover from customers for the product of that labor, then any employer or prospective employer, seeking a new employee, must offer applicants better terms than those previously prevailing and these new and higher terms must be paid to all doing similar work.</p>
<p>Both employers and labor unions have a right to sign and maintain any contract for moral employment, so long as the agreement is reached voluntarily without the use or threat of any force, coercion, or violence. Only the market compulsions of supply and demand should prevail. Once such a contract is signed, it becomes the private property of the respective parties. It is then the function of government to protect that private property from violence and assist in the peaceful adjudication of any differences which may arise.</p>
<p>Today there is an almost religious belief that the government should do more than maintain peace and umpire differences of opinion. Millions believe that government intervention can create "social gains" by interfering in the free market so as to force one group to grant another group certain terms, rights, or privileges that they could not obtain in a free market. Taking advantage of this popular lack of economic understanding, labor unions have sought and obtained the sanction of laws which permit them to dictate the terms under which their chosen branch of production is permitted to function. If the entrepreneurs cannot or will not agree, production ceases and accumulated capital lies idle, deteriorating without satisfying any of the admitted desires of consumers. Even when they permit industry to operate, unions have often acted so as to prevent the use of the most efficient methods of production. They utilize their legal right, to prevent others from taking the jobs they want, to insist on "featherbedding," whereby consumers, acting through employers, must pay for labors that are not needed or may not be performed.</p>
<p>These and many other current activities of labor unions act as a damper on production and the general welfare of all market participants. Such union activities also irk employers and all others who understand economics and seek increased production for the greater satisfaction of themselves and other consumers.</p>
<p>Many employers seem to feel that if they could only get State governments to step into the employment picture on their side and outlaw union shop contracts, such as they now sign largely under duress, they could then increase production, profits, and the general welfare without so much union interference. They fail to realize that the power of unions to exact uneconomic benefits for minority groups at the expense of society is the result of legal rights obtained under federal law, whereby majority selected unions are entitled to speak for all employees, whether or not they are members of the union and whether or not the employer desires to hire or fire any particular employee. This is the legal source of present-day uneconomic union power and until this legal right is withdrawn, the unions will continue to be able to extort privileges for those they represent at the expense of all others, including employers, consumers, and nonorganized workers.</p>
<p>If these practices should become general, the losses of union members would exceed their gains. Those the unions represent would then suffer as consumers in a market that offered fewer consumer goods than would be found in a free market. If these decreases in production were not offset by increased capital accumulation and operating efficiency, a real, as well as a relative, decline in production would result. In such an event, the uneconomic effects of union policies would become evident to more people than they are today. Our continued increase in both capital accumulation and business efficiency has tended to hide the losses resulting from the depredations of unions. As a result, only a few people are now able to visualize and realize that our increasing living standards could be increased still further, if popular opinion would only oppose the uneconomic actions of unions.</p>
<p>All members of society, who desire to enjoy the advantage of social cooperation, must be willing to pay the price for such advantages. If we want to go to the opera, we must pay the price of admission. If a man is a member of any private organization and certain dues or fees are levied on its members, he must pay them or withdraw. If a worker wants a certain job, he must meet the terms acceptable to other applicants. If an employer wants an employee to report for work at seven o"clock in the morning and the employee refuses to report for work that early, the employer should be free to seek someone else willing to do so. No prior employee should have any right to stop the employer from employing such a willing applicant in his stead. No one questions the right of workers to change their jobs, if they can find others they like better. Likewise no one should question an employer's right to change his employees, if he can find new ones more suited to his needs or personal likes.</p>
<p>The same principle applies to the union shop. The right to contract is a basic part of economic freedom and private property. No laws should prohibit or limit the free right of contract unless the contemplated contract violates the equal rights of others. In a free economy, employers and employees would be permitted to sign union shop contracts. They would also be legally permitted to sign, if both parties so desired, what have been called "yellow dog" contracts (wherein employees voluntarily agree not to join a union). In order to get union shop contracts, unions would then have to offer employers something better than they could get from nonunion workers. In order to get "yellow dog" contracts, employers would have to offer more attractive terms than unions could obtain for their members. A man has no inherent right to any specific job. The fact that an employer voluntarily signs a union shop contract merely shows that, under the prevailing circumstances, he prefers to hire union help. He does not violate the rights of any person, unless such person is a party to a contrary valid employment agreement that preceded the signing of the union shop contract.</p>
<p>Where the union shop contract is a voluntary agreement, it is similar in principle to any other voluntary employment contract signed for the purpose of increasing production. Employers should be free to employ whatever applicants they can persuade to accept their proffered terms. If they are foolish enough to want only workers who demand higher than free-market wages, without providing higher than average output, either in quantity or quality, that is their right. However, in a free economy few employers would be that foolish. If they were, the consumers would not long allow them to remain employers in a free market. They would take their trade to those who could sell at lower prices because they paid lower wages.</p>
<p>No businessman voluntarily signs any contract unless he is convinced, at the time of signing, that its advantages outweigh its disadvantages. Whenever an employer signs a contract with a union, he expects that the net results will be lower business costs than if he did not sign that contract. He would not sign a union shop contract unless he thought that, all things considered, it would bring him the best workers at the lowest wages. If he did not think so, he would never voluntarily sign such a contract.</p>
<p>Under present laws and popular opinion, however, labor unions can call a strike and prevent men from working. Under existing circumstances, they can prevent not only the employment of their own members but also the employment of all applicants for the jobs they refuse to fill. Some of this power arises from popular acceptance "of the union picket line, but part of it arises from the strength given unions by law, wherein employers are prevented from negotiating with nonunion members or nonstrikers. The law gives the union and its members a vested right in jobs once occupied by them and curtails the right of employers to discharge workers they no longer desire. Employers are often stopped from finding other workers willing to work at terms that strikers refuse. This, of course, is a violation of the free-market principle of voluntary social cooperation.</p>
<p>Unions and their members frequently occupy key positions enabling them to close down an entire plant or industry by interrupting the flow of production at a vulnerable spot. They are thus able to interfere with the work of many jobs other than their own. The losses they can thus afflict on employers, fellow workers, and consumers often exceed the cost of their immediate demands. By the use of this form of coercion, they are often able to force employers to sign contracts, including union shop contracts, which they would not sign under free-market conditions where the wishes of consumers would prevail instead of the legal privileges granted unions and their members.</p>
<p>In a free economy, men and groups of men would have the right to compete for all jobs. They would have no right to prevent unemployed or lower paid men from competing for their jobs, particularly when they refuse to work at them themselves. As the law now operates, unions and their members are able to force some employers to pay higher than market wages. They can also force some consumers to pay higher than market prices. This reduces consumer purchases and satisfactions. In addition, unions are often able to bar applicants from employment in their industry. This forces the rejected men to compete and drive wages still lower in other jobs, or else remain unemployed. This, in turn, has resulted in a demand for so-called minimum wage laws and then a further demand for unemployment insurance for those that unions and minimum wage laws make unemployable.</p>
<p>Our problem is to correct popular opinion and remove from the statute books all laws that are a result of the popular fallacy that it is a "social gain" for labor unions to be granted privileges to hold up production until they can extort whatever they want from the hides of all other participants in the market. Once this is done, unions will no longer be able to compel employers to sign union shop contracts under duress or fear of uneconomic losses.</p>
<p>The difficulty before us can be seen by a comparison of current newspaper stories with those of thirty-five or more years ago. Today, when union strikers threaten violence, injure peaceful citizens and damage property, most governors refuse to call out the national guard or militia to protect the menaced populace and private property. Instead, they issue statements blaming both sides in the "dispute." They seek to compel mediation. They refuse to protect nonstrikers who want to work. They thus permit small groups to terrorize the community for weeks and months on end with great losses of property and occasional loss of limbs and lives. Present-day politicians fear the power of the unions at the polls.</p>
<p>In 1919, when the police of Boston, Massachusetts, struck for the right to join the American Federation of Labor, things were different. Large numbers of policemen then went on a strike, hoping they could compel the city to grant them more favorable terms than they could obtain on a free market. The lives and property of Bostonians were suddenly left without police protection. Governor Calvin Coolidge immediately called out the State Guard and protected all those who desired to work as Boston policemen at the terms the city offered. The governor was warned that organized labor would oppose him at any future election and thus prevent his advancement in the political world. His laconic reply was "It does not matter."</p>
<p>The important thing to note, however, is that the very next year the governor was nominated and elected as vice president of the United States. Five years later, he proved to be very popular at the polls as a candidate to succeed himself in the Presidency.</p>
<p>Today, there is no way of knowing whether a political candidate could be elected if he took such a stand in favor of a free market in labor management relations. Few, if any, candidates for public office will take such a stand because it is generally accepted that most people now believe that the present uneconomic actions of unions represent "social gains." The answer does not lie in enacting into law similar "social gains" for employers whereby the states become their champions in a "class warfare" with employees championed by the national government. Transferring economic decisions, from the economic dollar democracy of the market to the political democracy of an electorate without economic understanding, would not solve any problem. It would only create a demand for more "economically insufficient and untenable" measures which would further help to revolutionize "the mode of production," from a consumer-run economy into a socialized political dictatorship that would closely resemble the National Socialist regime of Hitler's Germany.</p>
<p>The philosophy behind the agitation for the so-called right-to-work laws is the philosophy that production is a form of "class warfare" between employers and employees. It then follows that if government gives one group too much power, it must in justice give the other group sufficient counter-balancing power. Government then attempts to maintain a balance in the arena where these battles are fought. Under such conditions, competition is maintained only by bringing the most competent down to the level to which the least competent can be boosted.</p>
<p>The purpose of business is production for the economic satisfaction of consumers. Success and profits are measured by the ability of market suppliers to satisfy consumers. All production for market exchange, based on the advantages obtained by the division of labor, is a matter of social cooperation and not "social warfare." Trying to equalize two groups by granting privileges now to one and now to the other is like trying to make two opera singers equal, by preventing each one from singing notes the other cannot duplicate. The only way that such equality can possibly be attained is by curtailing the satisfactions that each party can provide consumers. It is a matter of pulling down, not building up. The fact that unions have been given certain privileges destructive of social cooperation is not sufficient reason for giving other destructive privileges to employers. The net result can only be less social cooperation and a decrease in total production.</p>
<p>One of the great things that the agitators for "right-to-work" laws forget is that the problem is basically one of getting the government out of moral business transactions and not into them, if they now seek State laws controlling employment contracts, they are inviting State governments to participate in every employment situation. All employment agreements and their terminations will then admittedly become a function for political, rather than market, decision. It will be a further delimiting of the free-market area wherein individuals and consumers remain free to register their wishes on economic matters.</p>
<p>If these laws are enacted, they will tend to develop further a situation such as is now found in some states where labor-management relations are supervised by Fair Employment Practices Commissions. In those states employers no longer feel free to employ those applicants whom they consider the most capable to perform the tasks at hand. They fear the ruling of some bureaucrat and must pay strict attention to the whims and wishes of those who have full power to penalize them or injure their public relations by threat of a court suit.</p>
<p>The evils of much uneconomic intervention of government is apparent in the operation of the New York State FEPC law. This writer was recently told of a situation concerning a girl who belonged to a particular religious sect. She desired a position in a bank department which at that time was entirely composed of girls belonging to the same particular religious sect. The bank wanted to employ this applicant, but would not do so because it feared that some bureaucrat might rule that such employment would be evidence of bias in favor of that particular sect. The employer felt that he must employ a member of another sect, or better yet a member of a minority race, who might or might not fit into this particular job as well as the rejected applicant.</p>
<p>Many New York employers no longer hire people solely on the basis of their ability. Instead, they feel that their employment policies must be so conducted as to maintain the same racial and religious ratios that are found in the local population. The aptitudes and predilections of any particular group or individual must be forgotten. If they do not do so, they must waste time and energy in defending their decisions before bureaucratic commissions and in the public press.</p>
<p>Under "right-to-work" laws, nonunion applicants would be given a legal standing in court and the employer might well be told whom he could employ and whom he could not employ, or be found guilty of bias against trouble making nonunion members. The bureaucrats of the states would intervene more and more, telling employers how many union and nonunion members they could employ as well as whom they could or could not fire, promote, or retire. The bureaucrat would be present at every hiring, firing, and promotion. Labor-management relations might well resemble those of Hitler's Germany where a man once hired could not be fired except for a crime against the State.</p>
<p>The problem is to stop the states from intervening in free-market personnel relations and not to seek such intervention. Two wrongs never make a right. The economic answer is to repeal the bad intervention and not try to counterbalance it with another bad intervention. Such moves only provide the politicians with greater power over the entire economy.</p>
<p>Unfortunately, many businessmen seem to think that the evils of intervention began with the New Deal. Actually, the seeds were sown far, far earlier. They were in the Interstate Commerce Act, the Sherman Anti-Trust Law, and the Act creating the Labor Department to help a politically favored group, the Income Tax Amendment, and the Federal Reserve Act and many others of pre–New Deal days. These earlier acts bore the fruit that led to the depression that started in 1929.</p>
<p>Each of these early laws was a government intervention which interfered with and hampered the operation of free markets. Each one granted privileges to one group at the expense of all others. They were all a burden on consumers and the general welfare. They all created vested interests that now resist the removal of these privileges. They were the original "despotic inroads on the rights of property … which appear economically insufficient and untenable." The New Deal Acts were only the "further inroads on the old social order … unavoidable as a means of entirely revolutionizing the mode of production."</p>
<p>Actually, if we stop to think of it, it is ridiculous for the government to grant counter-privileges to one group to offset the very privileges it has granted to other groups. All such privileges are a further obstruction to production and tend to reduce the satisfactions obtained from participation in the market.</p>
<p>The best example is probably the monopoly situation. First, the government grants monopoly privileges to certain firms or domestic industries. Then these firms or industries utilize these privileges to line their pockets at the expense of consumers. Isn't it then ridiculous to point to the results and demand that the injured groups be granted offsetting monopolies whereby they can recoup their losses? The logical solution is to take away the original privileges which caused the trouble in the first place.</p>
<p>The same solution is applicable to the labor-management situation. The cause of the present economic evils in labor-management relations is the club that federal laws have furnished labor unions whereby they can bludgeon established employers with capital in the form of fixed production facilities. Such employers must continually surrender to the unions or lose the entire value of their established reputation and invested capital. They are not free to employ the unemployed or lower paid workers who might be very happy to work for them.</p>
<p>The unions should be stripped of this club, as most employers have been stripped of the privileges they had legally obtained during the latter part of the last century. Granting privileges to labor unions is no better or no worse than granting privileges to employers or groups of employers. A free-market society requires that government be neutral, so far as it can be, and refuse to grant special unearned privileges to any group, because, in the end, all such privileges must be paid for in the sweat of all who labor and produce the wealth that consumers seek in the marketplace.</p>
<p>A perfect free-market society is probably unattainable by fallible men. Nevertheless it should ever be the goal of all moral and intelligent men and particularly of those economists who try to educate and influence their fellow men. As Mises has so ably demonstrated in all his writings, "There is no other means to attain full employment, rising real wage rates and a high standard of living for the common man than private initiative and free enterprise" (<em><a href="http://mises.org/resources/4309/Planning-for-Freedom-and-Twelve-other-Essays-and-Addresses">Planning for Freedom</a></em>, p. 17).</p>
<p>Every proposed measure should be weighed as to whether or not it advances the economy toward "private initiative and free enterprise." Increased government intervention tends to direct the economy further away from a free-market society.</p>
<p>Many call our economy a mixed economy. Actually it is, in the terms of Mises, a "hampered market economy." It is constantly in movement as every economy must be. It must move either toward freedom or toward statism. The better economic understanding our leaders and people have, the more likely it is that present uneconomic measures will be repealed and that the trend will be toward rising real wage rates and constantly higher living standards for all participants in the market economy. Economists should, therefore, oppose every proposed measure that moves in the other direction. So long as American popular opinion approves of present-day union shops and union activities, we are going to have them, but we shall have to pay the price in terms of lower production and lower living standards than a free economy would provide.</p>
<p>Everyone wants freedom, but probably no group wants it any more than employers as a group. Unfortunately, too many employers have sought special privileges in the past. Actually, it was undoubtedly some of the early government-granted privileges for some employers that produced the demand for the New and Fair Deal intervention. Most such intervention was planned to help organized "labor" and the other large groups that had suffered when employers were in the saddle and obtaining favorable intervention for themselves.</p>
<p>So long as political groups can grant economic privileges, there will always be attempts to buy their votes in one way or another. The political problem is to so limit government that politicians cannot grant economic privileges to any groups. We must remove the temptations to greedy men who seek to gain their wealth at the expense of others rather than through the economic principles of voluntary social cooperation.</p>
<p>The aim of free people should always be a government that provides equal protection for all and favors for none. Men alone, or in groups, should be permitted to choose their associates and that includes the right to choose those with whom they associate in their employment. The right to make contracts, one man with another or a group, should be unlimited so long as other men have a similar right. Employers and employees should be free to sign mutually satisfactory employment contracts for closed shops, union shops, open shops, or anti-union shops. The only limitation should be that they are signed voluntarily.</p>
<p>The important thing is to work for basic principles whereby peaceful persons can pursue their personal satisfactions through the cooperation inherent in a free market. The place of government in the market is that of a policeman who arrests marauders, not that of a politician who bestows favors.</p>
<p>If the country is flooded with "right-to-work" laws, it will only serve to temporize for a time the evils now inherent in federal labor laws. Such State laws will perhaps allay for a time the fears that many people have concerning the dire consequences we are now experiencing as a result of union activities. Actually, it might be both better economics and better expediency to let present laws go their limit, so that people might soon learn how bad they really are.</p>
<p>This writer now hates to admit that, as an "expert" for the House Committee on Education and Labor, he was one of the few who helped to write the first draft of the Hartley bill. This was the bill that was later amended and passed as the National Labor Management Relations Act of 1947, more popularly known as the Taft-Hartley Law. He is quick to add that he resigned from this Committee before it reported the bill in a different form to the House of Representatives. He has learned through personal experience that it does not pay to compromise either moral or economic principles for illusory short-term advantages. His 1947 political experience, as related below, substantiates his belief that even politicians, who place emphasis on winning the next election, would do well to advocate freedom ideas consistently and not seek favors for either employers or employees.</p>
<p>After the Republican Congressional victory in 1946, the late Senator Robert A. Taft, of Ohio, summoned this writer to his office to discuss the top position on the Senate Labor Committee which was then about to consider what later became the Taft-Hartley Law. This writer wanted as much freedom in the law as Congress would approve and was willing to make the financial sacrifice involved, if he could work toward that goal. But the senator outlined his philosophy and stated that he wanted to change the law just to the extent that it could be passed over the veto of the then Democratic president, Harry Truman. The senator sincerely believed that with a Republican presidential and Congressional victory in 1948, the law could subsequently be changed to the form in which he really desired it.</p>
<p>At that time, 1947, the country was thoroughly aroused against the union abuses practiced under the protection of the Wagner Act. The nation was ready for a change in its basic labor laws, but there were only a very few people who had any understanding of the specific changes that were needed to protect private initiative and free enterprise. The senator proposed that the law be ameliorated toward freedom only so far as two-thirds of the Congress would approve over a presidential veto. The senator and others thought such an expedient move would improve the immediate situation and help elect a Republican slate in the ensuing national elections.</p>
<p>This writer opposed this thinking on the basis that it would be better not to have any new law at that time. His contention was that a successful veto of a better law would result in a growing public pressure for the repeal of the Wagner Act and the election of the party that espoused such a move. The senator was not willing to go that far. He believed his policy was politically more realistic. It was this writer's contention that, if the senator's plan were successful, the public would be persuaded that the then evident economic distress flowing from union activity had been remedied and the next tide of public opinion might well be in the other direction. The senator demurred and so this writer accepted employment with the House, rather than the Senate, Committee.</p>
<p>The late great senator from Ohio had his wish and skillfully drafted an ameliorating measure which passed over the presidential veto. However, in the judgment of this writer, freedom and the Republican Party lost. The Republicans failed to carry on their fight to repeal the still obnoxious sections of our federal labor laws and public opinion, which once seemed against government intervention in labor-management relations, has apparently taken a turn in the opposite direction. In fact, the amendments, more recently proposed by the Republican leadership, have been in the direction desired by union leaders. In the words of their sponsors, they are "middle-of-the-road" in principle.</p>
<p>Somewhat the same situation is involved in the so-called right-to-work laws. If they are passed in a large number of states, they will temporarily relieve the present uneconomic evils that exist in federal labor laws. They will allay the fear among those people who see and comprehend the dire results now flowing from present union activities. The organized labor union minority can then more easily organize its forces to lobby successfully for a federal law which would at one stroke outlaw all the so-called right-to-work laws of the various states.</p>
<p>On occasion, this writer has watched with interest the actions of John L. Lewis, president of the United Mine Workers Union. This union leader has, more consistently than any other union leader, followed the policy of getting his members all the privileges the law permits them. He has obtained high wages for a few miners, while greatly reducing the number of jobs in coal mining. Young men, who might have become miners, are shut out and must compete for lower-paid jobs by driving those wages still lower or remain unemployed.</p>
<p>This is using the laws to the fullest extent. It also illustrates how economically foolish they are. A privileged few gain at the expense of the entire community and production is diverted into other lines whose products are not the ones consumers want most.</p>
<p>Neither labor leaders nor their members can be blamed for using privileges which the people have granted them by law. It has only been the prudent temporizing of most unions that has permitted their Marxian moves to become so generally accepted. Few people understand the underlying fallacies on which they are based. Economic education must be rescued from the political arena. The burden placed on economists, who are not dependent on political or public payrolls, is great and they have a public duty to speak out against all those who would expand political controls at the expense of a free people supported by the products of a free market.</p>
<p>We cannot blame those who take advantage of present uneconomic laws. These laws are wrong. The blame must fall on those who sanction them and permit them to continue on the statute books. Actually, if the unions had been less temperate in pushing their legal privileges to their ultimate and logical conclusion, they might well have lost their privileges to hamper the free market at will. It is by the very process of slow steps, each scarcely noticed, that unions have been able to persuade unsuspecting millions that the uneconomic gains of the legally privileged few are "social gains" for all.</p>
<p>The American public, as well as the world public, must be alerted to the dangers that flow from government economic intervention. By a process of gradualism, a politically privileged few have fastened on our economy this Marxian policy of ever-increasing "despotic inroads on the rights of property." If the New and Fair Deals had been enacted in toto, they might well have brought the people to their senses far quicker than our continued middle-of-the-road compromising with moral and economic principles.</p>
<p>The so-called right-to-work laws are just that, a proposed middle-of-the-road compromise with free-market principles for expedient purposes, with the hope lurking in the back of the minds of those who advocate them, that some day everything will clear up without employers or consumers ever having to face the issue or the price of meeting it. They forget that the laws of economics are the inexorable laws of cause and effect and that unsound actions will never produce desirable results.</p>
<p>If men want to enjoy ever higher living standards, they must act intelligently and oppose all man-made laws that limit the application of such intelligence to economic matters. Every government intervention is an interference with actions which would grant greater satisfactions to consumers. The only way to increase human satisfactions is to remove all such brakes on increased human happiness and not place any new ones on the statute books of either state or federal governments.</p>
<p>Every legislative proposal should be weighed on the scales of economic understanding. Does it tip the balance toward a free economy or toward a socialist dictatorship with the politicians in control of the means of production? The so-called right-to-work laws are definitely a step in the direction toward Socialism. They limit the right of free men to negotiate contracts for morally acceptable purposes and attempt to substitute the decisions of politicians for those that consumers would like to express in the market place.</p>
<div class="article-author"><p>This essays originally appeared in <a href="http://mises.org/resources/3327/On-Freedom-and-Free-Enterprise-Essays-in-Honor-of-Ludwig-von-Mises"><em>On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises</em></a> (1956) as chapter 9, "Is Further Intervention a Cure for Prior Intervention?"</p></div>
Percy L. Greaves, Jr.Is Further Intervention a Cure for Prior Intervention?<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/ShootSelfInFoot.jpg?itok=s_uCSr_q" width="240" alt="ShootSelfInFoot.jpg" />6523July 18, 2018 - 2:00 PMInterventionismThe Fantasy Behind Marx's Historical Materialismhttps://mises.org/node/6442
<div class="editorial-preface"><p>[This article is excerpted from volume 2, chapter 12 of <a href="http://mises.org/resources/5800/Austrian-Perspective-on-the-History-of-Economic-Thought"><i>An Austrian Perspective on the History of Economic Thought</i></a> (1995). An MP3 audio file of this chapter, narrated by Jeff Riggenbach, is <a href="http://mises.org/media/6019/12-The-Marxian-System-I-Historical-Materialism-and-the-Class-Struggle">available for download</a>.]</p></div>
<div class="figure"> </div>
<p>There is no place in his system where Marx is fuzzier or shakier than at its base: the concept of historical materialism, the key to the inevitable dialectic of history.</p>
<p>At the base of historical materialism and of Marx's view of history is the concept of the "material productive forces." These "forces" are the driving power that creates all historical events and changes. So what are these "material productive forces"? This is never made clear. The best that can be said is that material productive forces mean "technological methods." On the other hand, we are also faced with the term "mode of production," which seems to be the same thing as material productive forces, or the sum of, or systems of, technological methods.</p>
<p>At any rate, these material productive forces, these technologies and "modes of production," uniquely and monocausally create all "relations of production" or "social relations of production" independently of people's wills. These "relations of production," also extremely vaguely defined, seem to be essentially legal and property relations. The sum of these relations of production somehow make up the "economic structure of society." This economic structure is the "base" which causally determines the "superstructure," which includes natural science, legal doctrines, religion, philosophies, and all other forms of "consciousness." In short, at the bottom of the base is technology which in turn constitutes or determines modes of production, which in turn determines relations of production, or institutions of law or property, and which finally in turn determine ideas, religious values, art, etc.</p>
<p>How, then, do historical changes take place in the Marxian schema? They can <i>only</i> take place in technological methods, since everything else in society is determined by the state of technology at any one time. In short, if the state of technology is <i>T</i> and everything else is the determined superstructure, <i>S,</i> then to Marx,</p>
<div align="center" class="chart"><div class="single-chart"><table><tbody><tr><td align="center"><big><i>T<sub>n</sub> → S<sub>n</sub></i></big></td></tr></tbody></table></div></div>
<p>where <i>n</i> is any point of time. But then, the only way in which social change can take place is via change in technology, in which case</p>
<div align="center" class="chart"><div class="single-chart"><table><tbody><tr><td align="center"><big><i>T<sub>n</sub><sub> + 1</sub> → S<sub>n</sub><sub> + 1</sub></i></big></td></tr></tbody></table></div></div>
<p>As Marx put it in the clearest and starkest statement of his technological determinist view of history, in his <a href="http://www.amazon.com/gp/product/1451015178?ie=UTF8&camp=1789&creativeASIN=1451015178&linkCode=xm2&tag=misesinsti-20"><i>Poverty of Philosophy</i></a>:</p>
<blockquote><p>In acquiring new productive forces men change their mode of production, and in changing their mode of production, their means of gaining a living, they change all their social relations. The hand mill gives you society with the feudal lord; the steam mill society with the industrial capitalist.</p></blockquote>
<p>The first grave fallacy in this farrago is right at the beginning: Where does this technology come from? And how do technologies change or improve? Who puts them into effect? A key to the tissue of fallacies that constitute the Marxian system is that Marx never attempts to provide an answer. Indeed he cannot, since if he attributes the state of technology or technological change to the actions of man, of individual men, his whole system falls apart. For human consciousness, and individual consciousness at that, would then be determining material productive forces rather than the other way round. As von Mises points out:</p>
<blockquote id="ch12_ft3"><p>We may summarize the Marxian doctrine in this way: In the beginning there are the "material productive forces," i.e., the technological equipment of human productive efforts, the tools and machines. No question concerning their origin is permitted; they are, that is all; we must assume that they are dropped from heaven.<a class="see-footnote" id="footnoteref1_cgsq71g" title="Ludwig von Mises, Theory and History (1957, Auburn, Ala.: Mises Institute, 1985), pp. 111–2." href="#footnote1_cgsq71g">1</a></p></blockquote>
<p>And, we may add, any changes in that technology must therefore be dropped from heaven as well.</p>
<p>Furthermore, as von Mises also demonstrated, consciousness, rather than matter, is predominant in technology:</p>
<blockquote id="ch12_ft4"><p>a technological invention is not something material. It is the product of a mental process, of reasoning and conceiving new ideas. The tools and machines may be called material, but the operation of the mind which created them is certainly spiritual. Marxian materialism does not trace back "superstructural" and "ideological" phenomena to "material" roots. It explains these phenomena as caused by an essentially mental process, viz. invention.<a class="see-footnote" id="footnoteref2_qncho4f" title="Ibid., pp. 109–10." href="#footnote2_qncho4f">2</a></p></blockquote>
<p>Machines are embodied ideas. In addition, technological processes do not only require inventions. They must be brought forth from the invention stage and be embodied in concrete machines and processes. But that requires savings and capital investment as well as invention. But, granting this fact, then the "relations of production," the legal and property rights system in a society, help determine whether or not saving and investment will be encouraged and discouraged. Once again, the proper causal path is <i>from</i> ideas, principles, and the legal and property rights "superstructure" <i>to</i> the alleged "base."</p>
<p>Similarly, machines will not be invested in, unless there is a division of labor of sufficient extent in a society. Once again, the social relations, the cooperative division of labor and exchange in society, determine the extent and development of technology, and not the other way round.<a class="see-footnote" id="footnoteref3_bfijgpt" title=" In the Poverty of Philosophy, Marx angrily denounced Proudhon for making this very point, that division of labor precedes machines." href="#footnote3_bfijgpt">3</a></p>
<p>In addition to these logical flaws, the materialist doctrine is factually absurd. Obviously, the hand mill, which ruled in ancient Sumer, did <i>not</i> "give you" a feudal society there: furthermore, there were capitalist relations long before the steam mill. His technological determinism led Marx to hail each important new invention as <i>the</i> magical "material productive force" that would inevitably bring about the socialist revolution. Wilhelm Liebknecht, a leading German Marxist and friend of Marx, reported that Marx once attended an exhibition of electric locomotives in London, and delightedly concluded that electricity would give rise to the inevitable communist revolution.<a class="see-footnote" id="footnoteref4_wqlp53a" title="See M.M. Bober, Karl Marx's <em>Interpretation of History,</em> (2nd rev. ed., Cambridge, Mass.: Harvard University Press, 1948), p. 9." href="#footnote4_wqlp53a">4</a></p>
<p>Engels carried technological determinism so far as to declare that it was the invention of fire that separated man from the animals. Presumably the group of animals to whom fire somehow arrived were thereupon determined to evolve upward; the emergence of man himself was simply a part of the superstructure.</p>
<p>Even granting Marx's thesis momentarily for the sake of argument, his theory of historical change still faces insuperable difficulties. For why can't technology, which somehow develops as an automatic given, simply and smoothly change the "relations of production" and the "superstructure" above it? Indeed, if the base at each moment of time determines the rest of the superstructure, how can a change in the base <i>not</i> smoothly determine an appropriate change in the rest of the structure? But, again, a mysterious element enters the Marxian system. Periodically, as technology and the modes of production advance, they come into conflict, or, in the peculiar Hegelian-Marxian jargon, in "contradiction" to the relations of production, which continue in the conditions appropriate to the past time period and past technology. These relations therefore become "fetters" blocking technological development. Since they become fetters on growth, the new technology gives rise to an inevitable social revolution that overthrows the old production relations and the superstructure and creates new ones that have been blocked or fettered. In this way, feudalism gives rise to capitalism, which in turn will give way to socialism.</p>
<p>But if technology determines social production relations, what is the mysterious force that delays the change in those relations? It couldn't be human stubbornness or habit or culture, since we have already been informed by Marx that modes of production impel men to enter into social relations apart from their mere wills.</p>
<p>As Professor Plamenatz points out, we are merely <i>told</i> that the relations of production become fetters on the productive forces. Marx merely asserts this point, and never even attempts to offer a cause, material or otherwise. As Plamenatz puts the entire problem,</p>
<blockquote id="ch12_ft7"><p>then, all of a sudden, without warning and without explanation, he [Marx] tells us that there nevertheless arises inevitably from time to time an incompatibility between them [the productive forces and the relations of production] which only social revolution can resolve. This incompatibility apparently arises because the dependent variable [the relations] begins to impede the free operation of the variable on which it depends. [The material productive forces.] This is an astounding statement, and yet Marx can make it without even being aware that it requires explanation.<a class="see-footnote" id="footnoteref5_8bk0h4q" title="John Plamenatz, German Marxism and Russian Communism (New York: Longmans, Green & Co., 1954), p. 29." href="#footnote5_8bk0h4q">5</a></p></blockquote>
<p>Professor Plamenatz has shown that part of the deep confusion is both generated, and camouflaged, by Marx's failure to define "relations of production" adequately. This concept apparently includes legal property relations. But if legal property relations were at fault in this dialectical delay in adjustment, thus setting up the "fetters," then Marx would be conceding that the problem is really legal or political rather than economic. But he wanted the determining base to be <i>purely economic;</i> the political and the ideological had to be merely part of the determined superstructure. So "social relations of production," allegedly economic, were the fetters; but this can only makes sense if this means the property rights or legal system. And so Marx got out of his dilemma by being so fuzzy and ambivalent about the "relations of production" that these relations could be taken either as <i>including</i> the property structure, as <i>identical</i> with that structure, or else the two might be totally <i>separate</i> entities.</p>
<p>In particular, Marx accomplished his obscurantist purpose by asserting that the property rights system was part of the "legal expression of the "relations of production" — thus somehow being able to be part of the superstructure and yet of the economic "relations of production" at the same time. "Legal expression," needless to say, was not defined either. As Plamenatz summed up, the entire concept of "relations of production," so necessary to the Marxian thesis of material or economic determinism, serves Marx as a "ghost battalion closing a vital gap in the front of Marxian theory."<a class="see-footnote" id="footnoteref6_dsxu8z4" title="Ibid., p. 27." href="#footnote6_dsxu8z4">6</a> Yet in all this there is no way that the concept of "relations of production" can make economic determinism intelligible, and there is no way by which these relations can either be determined by the modes of production <i>or</i> can in themselves determine the property rights system.</p>
<p>The only possible coherent chain of causation, in contrast, is the other way round: from ideas to property rights systems to the fostering or crippling the growth of saving and investment, and of technological development.</p>
<p>Twentieth-century Marxists, from Lukacs to Genovese, have often tried to save the day from the embarrassment of the technological determinism of Marx and his immediate followers. They maintain that all sophisticated Marxists know that the causation is not unilinear, that the base and the superstructure really influence each other. Sometimes, they try to torture the data to claim that Marx himself took such a sophisticated position. Either way, they are characteristically obfuscating the fact that they have in reality abandoned Marxism. Marxism is monocausal technological determinism, along with all the rest of the fallacies we have depicted, or it is nothing, and it has demonstrated no inevitable or even likely dialectic mechanism.<a class="see-footnote" id="footnoteref7_ls9mzgx" title="For a defense of technological monocausality as a key to Marxism by the founder of Russian Marxism, George V. Plekhanov (1857–1918), see Plekhanov, The Development of the Monist View of History (New York: International Publishers, 1973). Cf. David Gordon, Critics of Marxism (New Brunswick, MJ: Transaction Books, 1986), p. 22. For a critique of Marxism-Plekhanovism, see Leszek Kolakowski, Main Currents of Marxism (Oxford: Oxford, University Press, 1981), pp. 340–2." href="#footnote7_ls9mzgx">7</a></p>
<ul class="footnotes"><li class="footnote" id="footnote1_cgsq71g"><a class="footnote-label" href="#footnoteref1_cgsq71g">1.</a> Ludwig von Mises, <a href="http://mises.org/document/118/Theory-and-History-An-Interpretation-of-Social-and-Economic-Evolution"><em>Theory and History</em></a> (1957, Auburn, Ala.: Mises Institute, 1985), pp. 111–2.</li>
<li class="footnote" id="footnote2_qncho4f"><a class="footnote-label" href="#footnoteref2_qncho4f">2.</a> Ibid., pp. 109–10.</li>
<li class="footnote" id="footnote3_bfijgpt"><a class="footnote-label" href="#footnoteref3_bfijgpt">3.</a> In the <em>Poverty of Philosophy</em>, Marx angrily denounced Proudhon for making this very point, that division of labor precedes machines.</li>
<li class="footnote" id="footnote4_wqlp53a"><a class="footnote-label" href="#footnoteref4_wqlp53a">4.</a> See M.M. Bober, Karl Marx's <em>Interpretation of History,</em> (2nd rev. ed., Cambridge, Mass.: Harvard University Press, 1948), p. 9.</li>
<li class="footnote" id="footnote5_8bk0h4q"><a class="footnote-label" href="#footnoteref5_8bk0h4q">5.</a> John Plamenatz, <em>German Marxism and Russian Communism</em> (New York: Longmans, Green & Co., 1954), p. 29.</li>
<li class="footnote" id="footnote6_dsxu8z4"><a class="footnote-label" href="#footnoteref6_dsxu8z4">6.</a> Ibid., p. 27.</li>
<li class="footnote" id="footnote7_ls9mzgx"><a class="footnote-label" href="#footnoteref7_ls9mzgx">7.</a> For a defense of technological monocausality as a key to Marxism by the founder of Russian Marxism, George V. Plekhanov (1857–1918), see Plekhanov, <em>The Development of the Monist View of History</em> (New York: International Publishers, 1973). Cf. David Gordon, <em>Critics of Marxism</em> (New Brunswick, MJ: Transaction Books, 1986), p. 22. For a critique of Marxism-Plekhanovism, see Leszek Kolakowski, <em>Main Currents of Marxism</em> (Oxford: Oxford, University Press, 1981), pp. 340–2.</li>
</ul>Murray N. RothbardThe Fantasy Behind Marx's Historical Materialism<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/machinetools1.PNG?itok=u6SX3Tka" width="240" alt="machinetools1.PNG" />6442July 17, 2018 - 2:00 PMInterventionismCan the State Reduce Poverty?https://mises.org/node/4808
<p>[A selection from <a href="https://mises.org/library/conquest-poverty"><em>The Conquest of Poverty</em></a>.]</p>
<p>From the beginning of history, sincere reformers as well as demagogues have sought to abolish or at least to alleviate poverty through state action. In most cases their proposed remedies have only served to make the problem worse.</p>
<p>The most frequent and popular of these proposed remedies has been the simple one of seizing from the rich to give to the poor. This remedy has taken a thousand different forms, but they all come down to this. The wealth is to be "shared," to be "redistributed," to be "equalized." In fact, in the minds of many reformers it is not poverty that is the chief evil but inequality.</p>
<p>All schemes for redistributing or equalizing incomes or wealth must undermine or destroy incentives at both ends of the economic scale. They must reduce or abolish the incentives of the unskilled or shiftless to improve their condition by their own efforts; and even the able and industrious will see little point in earning anything beyond what they are allowed to keep. These redistribution schemes must inevitably reduce the size of the pie to be redistributed. They can only level down. Their long-run effect must be to reduce production and lead toward national impoverishment.</p>
<p>The problem we face is that the false remedies for poverty are almost infinite in number. An attempt at a thorough refutation of any single one of them would run to disproportionate length. But some of these false remedies are so widely regarded as real cures or mitigations of poverty that if I do not refer to them I may be accused of having undertaken a book on the remedies for poverty while ignoring some of the most obvious.</p>
<p>The most widely practiced "remedy" for low incomes in the last two centuries has been the formation of monopolistic labor unions and the use of the strike threat. In nearly every country today this has been made possible to its present extent by government policies that permit and encourage coercive union tactics and inhibit or restrict counteractions by employers.</p>
<p>As a result of union exclusiveness, of deliberate inefficiency, of featherbedding, of disruptive strikes and strike threats, the long-run effect of customary union policies has been to discourage capital investment and to make the average real wage of the whole body of workers lower, and not higher, than it would otherwise have been.</p>
<p>Nearly all of these customary union policies have been dishearteningly shortsighted. When unions insist on the employment of men who are not necessary to do a job (requiring unneeded firemen on diesel locomotives; forbidding the gang size of dock workers to be reduced below, say, twenty men no matter what the size of the task; demanding that a newspaper's own printers must duplicate advertising copy that comes in already set in type, etc.), the result may be to preserve or create a few more jobs for specific men in the short run, but only at the cost of making impossible the creation of an equivalent or greater number of more productive jobs for others.</p>
<p>The same criticism applies to the age-old union policy of opposing the use of labor-saving machinery. Labor-saving machinery is installed only when it promises to reduce production costs. When it does that, it either reduces prices and leads to increased production and sales of the commodity being produced, or it makes more profits available for increased reinvestment in other production. In either case its long-run effect is to substitute more productive jobs for the less productive jobs it eliminates.</p>
<p>A similar judgment must be passed on all "spread-the-work" schemes. The existing Federal Wage-Hour Law has been on the books for many years. It provides that the employer must pay a 50% penalty overtime rate for all hours that an employee works in excess of 40 hours a week, no matter how high the employee's standard hourly rate of pay.</p>
<p>This provision was inserted at the insistence of the unions. Its purpose was to make it so costly for the employer to work men overtime that he would be obliged to take on additional workers.</p>
<p>Experience shows that the provision has in fact had the effect of narrowly restricting the length of the working week…. But it does not follow that the hour restriction either created more long-term jobs or yielded higher total payrolls than would have existed without the compulsory 50% overtime rate.</p>
<p>No doubt in isolated cases more men have been employed than would otherwise have been. But the chief effect of the overtime law has been to raise production costs. Firms already working full standard time often have to refuse new orders because they cannot afford to pay the penalty overtime necessary to fill those orders. They cannot afford to take on new employees to meet what may be only a temporarily higher demand because they may also have to install an equivalent number of additional machines.</p>
<p>Higher production costs mean higher prices. They must therefore mean narrowed markets and smaller sales. They mean that fewer goods and services are produced. In the long run, the interests of the whole body of workers must be adversely affected by compulsory overtime penalties.</p>
<p>All this is not to argue that there ought to be a longer work week, but rather that the length of the work week, and the scale of overtime rates, ought to be left to voluntary agreement between individual workers or unions and their employers. In any case, legal restrictions on the length of the working week cannot in the long run increase the number of jobs. To the extent that they can do that in the short run, it must necessarily be at the expense of production and of the real income of the whole body of workers.</p>
Henry HazlittCan the State Reduce Poverty?<img typeof="foaf:Image" src="https://mises-media.s3.amazonaws.com/styles/slideshow/s3/static-page/img/poverty1.PNG?itok=F00EvUh0" width="240" alt="poverty1.PNG" />4808July 13, 2018 - 2:00 PMInterventionism